[UGBA 120AA] homework template (Chapters 5~9) PDF

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[UGBA120AA] Homework assignment E 5-10 Future and present value Answer each of the following independent questions. 1. Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $64,000 cash immediately, (2) $20,000 cash immediately and a six-period annuity of $8,000 beginning one year from today, or (3) a six-period annuity of $13,000 beginning one year from today. Assuming an interest rate of 6%, which option should Alex choose? 2. The Weimer Corporation wants to accumulate a sum of money to repay certain debts due on December 31, 2030. Weimer will make annual deposits of $100,000 into a special bank account at the end of each of 10 years beginning December 31, 2021. Assuming that the bank account pays 7% interest compounded annually, what will be the fund balance after the last payment is made on December 31, 2030?

E 5-11 Deferred annuities Lincoln Company purchased merchandise from Grandville Corp. on September 30, 2021. Payment was made in the form of a noninterest-bearing note requiring Lincoln to make six annual payments of $5,000 on each September 30, beginning on September 30, 2024. Required: Calculate the amount at which Lincoln should record the note payable and corresponding purchases on September 30, 2021, assuming that an interest rate of 10% properly reflects the time value of money in this situation.

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[UGBA120AA] Homework assignment E 5-17 Price of a bond; interest expense On June 30, 2021, Singleton Computers issued 6% stated rate bonds with a face amount of $200 million. The bonds mature on June 30, 2036 (15 years). The market rate of interest for similar bond issues was 5% (2.5% semiannual rate). Interest is paid semiannually (3%) on June 30 and December 31, beginning on December 31, 2021. Required: 1. Determine the price of the bonds on June 30, 2021. 2. Calculate the interest expense Singleton reports in 2021 for these bonds.

P 5-6 Solving for unknowns The following situations should be considered independently. 1. John Jamison wants to accumulate $60,000 for a down payment on a small business. He will invest $30,000 today in a bank account paying 8% interest compounded annually. Approximately how long will it take John to reach his goal? 2. The Jasmine Tea Company purchased merchandise from a supplier for $28,700. Payment was a noninterest bearing note requiring Jasmine to make five annual payments of $7,000 beginning one year from the date of purchase. What is the interest rate implicit in this agreement? 3. Sam Robinson borrowed $10,000 from a friend and promised to pay the loan in 10 equal annual installments beginning one year from the date of the loan. Sam’s friend would like to be reimbursed for the time value of money at a 9% annual rate. What is the annual payment Sam must make to pay back his friend? 4.

E 6–3 Allocating transaction price 2

[UGBA120AA] Homework assignment Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer’s home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $1,700, sells the remote separately for $100, and offers the installation service separately for $200. The entire package sells for $1,900. Required: How much revenue would be allocated to the TV, the remote, and the installation service?

E 6–9 Variable consideration; estimation and constraint Thomas Consultants provided Bran Construction with assistance in implementing various cost-savings initiatives. Thomas’s contract specifies that it will receive a flat fee of $50,000 and an additional $20,000 if Bran reaches a prespecified target amount of cost savings. Thomas estimates that there is a 20% chance that Bran will achieve the cost-savings target. Required: 1. Assuming Thomas uses the expected value as its estimate of variable consideration, calculate the transaction price. 2. Assuming Thomas uses the most likely value as its estimate of variable consideration, calculate the transaction price. 3. Assume Thomas uses the expected value as its estimate of variable consideration but is very uncertain of that estimate due to a lack of experience with similar consulting arrangements. Calculate the transaction price.

E 6-10 Variable consideration most likely amount; change in estimate 3

[UGBA120AA] Homework assignment Rocky Guide Service provides guided 1-5 day hiking tours throughout the Rocky Mountains. Wilderness Tours hires Rocky to lead various tours that Wilderness sells. Rocky receives $1,000 per tour day, and shortly after the end of each month Rocky learns whether it will receive a $100 bonus per tour day it guided during the previous month if its service during that month received an average evaluation of “excellent” by Wilderness customers. The $1,000 per day and any bonus due are paid in one lump payment shortly after the end of each month. • On July 1, based on prior experience. Rocky estimated there is a 30% chance it will earn the bonus for July tours. It guided a total of 10 days from July 1-July 15. • On July 16, based on Rocky’s view that it had provided excellent service during the first part of the month. Rocky revised its estimate to an 80% chance it would earn the bonus for July tours. Rocky also guided customers for 15 days from July 16-July 31. • On August 5, Rocky learned it did not receive an average evaluation of “excellent” for its July tours, so it would not receive any bonus for July, and received all payment due for the July tours. Rocky bases estimates of variable consideration on the most likely amount it expects to receive. Required: 1. Prepare Rocky’s July 15 journal entry to record revenue for tours given from July 1-July 15. 2. Prepare Rocky’s July 31 journal entry to record revenue for tours given from July 16-July 31. 3. Prepare Rocky’s August 5 journal entry to record any necessary adjustments to revenue and receipt of payment from Wilderness. 4.

E 6–19 Long-term contract; revenue recognition over time and at a point in time 4

[UGBA120AA] Homework assignment Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The project began in 2021 and was completed in 2022. Data relating to the contract are summarized below:

Required: 1. Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming Nortel recognizes revenue over time according to percentage of completion. 2. Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming this project does not qualify for revenue recognition over time. 3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming Nortel recognizes revenue over time according to percentage of completion. 4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming this project does not qualify for revenue recognition over time. 5.

E 6–21 Long-term contract; revenue recognition over time; loss projected on entire project 5

[UGBA120AA] Homework assignment On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,000,000. During 2021, costs of $2,000,000 were incurred with estimated costs of $4,000,000 yet to be incurred. Billings of $2,500,000 were sent, and cash collected was $2,250,000. In 2022, costs incurred were $2,500,000 with remaining costs estimated to be $3,600,000. 2022 billings were $2,750,000, and $2,475,000 cash was collected. The project was completed in 2023 after additional costs of $3,800,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion. Required: 1. Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years. 2. Prepare journal entries for 2021 and 2022 to record the transactions described (credit “various accounts” for construction costs incurred). 3. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2021 and 2022.

E 6–22 Long-term contract; revenue recognition upon project completion; loss projected on entire project 6

[UGBA120AA] Homework assignment [This is a variation of E 6–21 focusing on the revenue recognition upon project completion.] On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,000,000. During 2021, costs of $2,000,000 were incurred, with estimated costs of $4,000,000 yet to be incurred. Billings of $2,500,000 were sent, and cash collected was $2,250,000. In 2022, costs incurred were $2,500,000 with remaining costs estimated to be $3,600,000. 2022 billings were $2,750,000, and $2,475,000 cash was collected. The project was completed in 2023 after additional costs of $3,800,000 were incurred. The company’s fiscal year-end is December 31. This project does not qualify for revenue recognition over time.

Required: 1. Calculate the amount of gross profit or loss to be recognized in each of the three years. 2. Prepare journal entries for 2021 and 2022 to record the transactions described (credit “various accounts” for construction costs incurred). 3. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2021 and 2022. Indicate whether any of the amounts shown are contract assets or contract liabilities.

E 6–24 Long-term contract; revenue recognition over time; solve for unknowns 7

[UGBA120AA] Homework assignment In 2021, Long Construction Corporation began construction work under a three-year contract. The contract price is $1,600,000. Long recognizes revenue over time according to percentage of completion for financial reporting purposes. The financial statement presentation relating to this contract at December 31, 2021, is as follows:

Required: 1. 2. 3. 4.

What was the cost of construction actually incurred in 2021? How much cash was collected in 2021 on this contract? What was the estimated cost to complete as of the end of 2021? What was the estimated percentage of completion used to calculate revenue in 2021?

E 7–18 Note receivable 8

[UGBA120AA] Homework assignment On June 30, 2021, the Esquire Company sold some merchandise to a customer for $30,000. In payment, Esquire agreed to accept a 6% note requiring the payment of interest and principal on March 31, 2022. The 6% rate is appropriate in this situation. Required: 1. Prepare journal entries to record the sale of merchandise (omit any entry that might be required for the cost of the goods sold), the December 31, 2021 interest accrual, and the March 31, 2022 collection. 2. If the December 31 adjusting entry for the interest accrual is not prepared, by how much will income before income taxes be over- or understated in 2021 and 2022?

E 7-22 Assigning of specific accounts receivable 9

[UGBA120AA] Homework assignment On June 30, 2021, the High Five Surfboard Company had outstanding accounts receivable of $600,000. On July 1, 2021, the company borrowed $450,000 from the Equitable Finance Corporation and signed a promissory note. Interest at 10% is payable monthly. The company assigned specific receivables totaling $600,000 as collateral for the loan. Equitable Finance charges a finance fee equal to 1.8% of the accounts receivable assigned. Required: Prepare the journal entry to record the borrowing on the books of High Five Surfboard.

E 7–23 Factoring of accounts receivable without recourse Mountain High Ice Cream Company transferred $60,000 of accounts receivable to the Prudential Bank. The transfer was made without recourse. Prudential remits 90% of the factored amount to Mountain High and retains 10%. When the bank collects the receivables, it will remit to Mountain High the retained amount (which Mountain estimates has a fair value of $5,000) less a 2% fee (2% of the total factored amount). Required: Prepare the journal entry to record the transfer on the books of Mountain High assuming that the sale criteria are met.

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[UGBA120AA] Homework assignment P 7–1 Uncollectible accounts; allowance method; income statement and balance sheet approach Swathmore Clothing Corporation grants its customers 30 days’ credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 3% times the amount of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly. At the end of 2020, accounts receivable were $574,000 and the allowance account had a credit balance of $54,000. Accounts receivable activity for 2021 was as follows:

The company’s controller prepared the following aging summary of year-end accounts receivable:

Required: 1. Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year. 2. Prepare the necessary year-end adjusting entry for bad debt expense. 3. What is total bad debt expense for 2021? How would accounts receivable appear in the 2021 balance sheet?

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[UGBA120AA] Homework assignment

E 8-4 Perpetual and periodic inventory systems compared The following information is available for the Johnson Corporation:

Required: Applying both a perpetual and a periodic inventory system, prepare the journal entries that summarize the transactions that created these balances. Include all end-of-period adjusting entries indicated.

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[UGBA120AA] Homework assignment

E 8–11 Trade and purchase discounts; the gross method and the net method compared Tracy Company, a manufacturer of air conditioners, sold 100 units to Thomas Company on November 17, 2021. The units have a list price of $500 each, but Thomas was given a 30% trade discount. The terms of the sale were 2/10, n/30. Thomas uses a periodic inventory system. Required: 1. Prepare the journal entries to record the (a) purchase by Thomas on November 17 and (b) payment on November 26, 2021, using the gross method of accounting for purchase discounts. 2. Prepare the journal entry to record the payment, assuming instead that it was made on December 15, 2021. 3. Repeat requirements 1 and 2 using the net method of accounting for purchase discounts.

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[UGBA120AA] Homework assignment

E 8-13 Inventory cost flow methods; periodic system Altira Corporation provides the following information related to its merchandise inventory during the month of August 2021:

Required: Using calculations based on a periodic inventory system, determine the inventory balance Altira would report in its August 31, 2021, balance sheet and the cost of goods sold it would report in its August 2021 income statement using each of the following cost flow methods: 1. First-in, first-out (FIFO) 2. Last-in, first-out (LIFO) 3. Average cost

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[UGBA120AA] Homework assignment

E 8-14 Inventory cost flow methods: perpetual system [This is a variation ofE 8-13 modified to focus on the perpetual inventory system and alternative cost flow methods.] Altira Corporation provides the following information related to its merchandise inventory during the month of August 2021:

Required: Using calculations based on a perpetual inventory system, determine the inventory balance Altira would report in its August 31, 2021, balance sheet and the cost of goods sold it would report in its August 2021 income statement using each of the following cost flow methods; 1. First-in, first-out (FIFO) 2. Average cost

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[UGBA120AA] Homework assignment

E 8–26 Dollar-value LIFO On January 1, 2021, the Haskins Company adopted the dollar-value LIFO method for its one inventory pool. The pool’s value on this date was $660,000. The 2021 and 2022 ending inventory valued at year-end costs were $690,000 and $760,000, respectively. The appropriate cost indexes are 1.04 for 2021 and 1.08 for 2022. Required: Calculate the inventory value at the end of 2021 and 2022 using the dollar-value LIFO method.

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[UGBA120AA] Homework assignment

E 9–2 Lower of cost or net realizable value

The inventory of Royal Decking consisted of five products. Information about the December 31, 2021, inventory is as follows:

Costs to sell consist of a sales commission equal to 10% of selling price and shipping costs equal to 5% of cost. Required: What unit value should Royal Decking use for each of its products when applying the lower of cost or net realizable value (LCNRV) rule to units of ending inventory?

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[UGBA120AA] Homework assignment

E 9–6 Lower of cost or market [This is a variation of E 9–3, modified to focus on the lower of cost or market.] Tatum Company has four products in its inventory. Information about the December 31, 2021, inventory is as follows:

The normal gross profit percentage is 25% of total cost. Required: 1. Determine the carrying value of inventory at December 31, 2021, assuming the lower of cost or market (LCM) rule is applied to individual products. 2. Assuming that inventory write-downs are common for Tatum Company, record any necessary year-end adjusting entry.

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[UGBA120AA] Homework assignment

E 9–10 Gross profit method A fire destroyed a warehouse of the Goren Group, Inc., on May 4, 2021. Accounting records on that date indicated the following:

The gross profit ratio has averaged 20% of sales for the past four years. Required: Use the gross profit method to estimate the cost of the inventory destroyed in the fire.

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[UGBA120AA] Homework assignment

E 9–11 Gross profit method Royal Gorge Company uses the gross profit method to estimate ending inventory and cost of goods sold when preparing monthly financial statements required by its bank. Inventory on hand at the end of October was $58,500. The following information for the month of November was available from company records:

In addition, the controller is aware of $8,000 of inventory that was stolen during November from one of the company’s warehouses. Required: 1. Calculate the estimated inventory at the end of November, assuming a gross profit ratio of 40%. 2. Calculate the estimated inventory at the end of November, assuming a markup on cost of 100%.

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[UGBA120AA] Homework assignment

E 9–12 Gross profit method; solving for unknown cost percentage National Distributing Company uses a periodic inventory system to track its merchandise inventory and the gross profit method to estimate ending inventory and cost of goods sold for interim periods. Net purchases for the month of August were $31,000. The July 31 and August 31, 2021, financial statements contained the following information:

Required: Determine the company’s cost percentage.

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[UGBA120AA] Homework assignment

E 9–16 Conventional retail method; normal spoilage Almaden Valley Variety Store uses the retail inventory method to estimate ending inventory and cost of goods sold. Data for 2021 are as follows:

Required: Estimate the ending inventory and cost of goods sold for 2021, applying the conventional retail method using the information provided.

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