Question 1 - Wood-Mode Company is involved in the design, manufacture, and installation of various types of wood products for large construction projects. Wood-Mode recently completed a large contract for Stadium Inc., which consisted of building 35 different types of concession counters for a new soccer arena under construction. The terms of the contract are that upon completion of the counters, Stadium would pay $2,000,000. Unfortunately, due to the depressed economy, the completion of the new soccer arena is now delayed. Stadium has therefore asked Wood-Mode to hold the counters at its manufacturing plant until the arena is completed. Stadium acknowledges in writing that it ordered the counters and that they now have ownership. The time that Wood-Mode Company must hold the counters is totally dependent on when the arena is completed. Because Wood-Mode has not received additional progress payments for the arena due to the delay, Stadium has provided a deposit of $300,000.
Explain this type of revenue recognition transaction.
What factors should be considered in determining when to recognize revenue in this transaction?
Question 2 - Gordeeva Corporation began selling goods on the installment basis on January 1, 2012. During 2012, Gordeeva had installment sales of $162,000; cash collections of $61,400; cost of installment sales of $111,780.
Prepare the company's entries to record 1) installment sales, 2) cash collected, 3) cost of installment sales, 4) deferral of gross profit, and 5) gross profit recognized, using the installment-sales method.
Question 3 - On March 1, 2012, Chance Company entered into a contract to build an apartment building. It is estimated that the building will cost $2,110,000 and will take 3 years to complete. The contract price was $3,409,000. The following information pertains to the construction period.
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2012
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2013
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2014
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|
Costs to date
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$675,200
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$1,473,840
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$2,168,000
|
|
Estimated costs to complete
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1,434,800
|
573,160
|
-0-
|
|
Progress billings to date
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867,000
|
1,811,000
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3,409,000
|
|
Cash collected to date
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821,000
|
1,685,000
|
3,285,000
|
Compute the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used.