Intermediate Accounting Questions -
Iowa Development (ID company made the following land sales and had the following cash collections:
2008: Sold Altoona land for $2,000,000 that cost ID $1,200,000. The land agreement required payments of $1,000,000 within one week of occupancy of the land, and the other $1,000,000 in 2009. ID received the $1,000,000 payment.
2009: Sold Boone land for $2,400,000 that cost ID $1,200,000. The land agreement required payments of $800,000 within one week of occupancy of the land and additional payments of $800,000 in 2010 and 2011. ID received the $800,000 payment, and also a $500,000 payment for the Altoona land.
1. Assume ID can estimate uncollectible accounts accurately, accrues bad debts at 5% of sales, and recognizes revenue upon transfer of title.
Required: Prepare journal entries to record the sale, cash collections, and recognition of gross profit (if appropriate) in 2008 and 2009.
On December 15, 2009, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance in two equal annual installments payable on December 15, 2010, and December 15, 2011. Ignore interest charges. Rigsby has a December 31 year-end.
2. In 2010, Rigsby would recognize realized gross profit of:
A. $ 0.
B. $450,000.
C. $300,000.
D. $400,000.
Todd Sweeney is an artist who sells his work under consignment (he displays his work in local barbershops, and customers buy the work there). Sweeney recently transferred a painting to a local barbershop.
3. After Sweeney has transferred a painting to a barbershop, the painting:
A. Should be counted in Sweeney's inventory until the barbershop sells it.
B. Should be counted in the barbershop's inventory, as they now possess it.
C. Should be counted in either Sweeney's or the barbershop's inventory, depending on which incurred the cost of preparing the painting for display.
D. None of these.
In 2009, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC uses the percentage-of-completion method to account for such projects and provides you with the following information (dollars in millions):
Accounts receivable (from construction progress billings) $37.5
Actual construction costs incurred in 2009 $135
Cash collected on project during 2009 $105
Construction in progress $207
Estimated percentage of completion during 2009 60%
4. What were the construction billings by CCC during 2009?
A. $142.5 million
B. $67.5 million
C. $37.5 million
D. None of these is correct
The Racquet Store (RS) sells franchise agreements in which they charge an up-front fee of $50,000 for assistance in setting up a store, and then a monthly fee of $1,000 for national advertising and administrative assistance. Steffi Hingis signs a franchise agreement with RS.
5. Assume that Steffi signed a $50,000 installment note when she signed the franchise agreement. RS has no experience estimating uncollectible accounts associated with these sorts of notes. They can recognize
A. $50,000 of revenue when Steffi signs the agreement.
B. $50,000 of revenue as soon as they have assisted Steffi in setting up the store.
C. revenue under the installment method, starting when Steffi signs the agreement.
D. revenue under the installment method, as soon as they have assisted Steffi in setting up the store.