Assignment
1) How much revenue, cost, and gross profit will the company recognize in the first and second year of the contract applying the cost recovery method that is required by IFRS? (Enter your answers in millions.)
A construction company entered into a fixed-price contract to build an office building for $36 million.
Construction costs incurred during the first year were $9 million and estimated costs to complete at the end of the year were $21 million.
The building was completed during the second year. Construction costs incurred during the second year were $22 million.
2) Charter Corporation, which began business in 2016, appropriately uses the installment sales method of accounting for its installment sales. The following data were obtained for sales made during 2016 and 2017:
|
|
2016
|
2017
|
|
Installment sales
|
520,000
|
510,000
|
|
Cost of installment sales
|
312,000
|
408,000
|
|
Cash collections on installment sales during:
|
|
|
|
2016
|
180,000
|
135,000
|
|
2017
|
-
|
140,000
|
Required:
1. How much gross profit should Charter recognize in 2016 and 2017 from installment sales?
2. What should be the balance in the deferred gross profit account at the end of 2016 and 2017?