Unit Three Assignment

AC501

Financial Accounting and Reporting

Kaplan University

Michael J. Baker

Exercise 7-5
(a)
Andre Agassi Construction Company
Completed-Contract Method
For Year Ended December 31, 2008

There is no computation necessary as there is no gross profit to be recognized under the completed-contract method prior to completion of the contract.

(b)
Andre Agassi Construction Company
Percentage-of-Completion Method
For Year Ended December 31, 2008

Total contract price $ 6,300,000

Total estimated cost 5,390,000

Gross profit $ 910,000

Percentage of completion ($ 1,185,800 / $ 5,390,000) 22%

Gross profit to be recognized ($ 910,000 X 22%) $ 200,200

Exercise 7-8
(a) Kenny Harrison Corporation

Installment-Sales Method

Computation of gross profit to be recognized on 2009 income statement:

2008 2009

Installment sales $ 480,000 $ 620,000

Gross profit as percentage of cost 25% 28%

Cash collections on 2008 sales $ 140,000 $ 240,000 Cash collection on 2009 sales $ 0 $ 180,000 Total cash collections $ 140,000 $ 420,000

X Gross profit percentage of sales 20% a 22% b

Gross profit to be recognized $ 28,000 $ 92,400

a Gross profit percentage of sales = Gross profit percentage of cost/(1 + gross percentage of cost) = .25/(1 + .25) = .25/1.25 = 20%

b Gross profit percentage of sales = Gross profit percentage of cost/(1 + gross percentage of cost) = .28/(1 + .28) = .28/1.28 = 22%

(b) Kenny Harrison Corporation

Cost-Recovery Method

Computation of gross profit to be recognized on 2009 income statement:

Year Cash Received Cost Recovered Cost Not Recovered Gross Profit Beg. Bal. - - $ 360,000 -

12/31/08 $ 140,000 $ 140,000 $ 220,000 $ 0 12/31/09 $ 240,000 $ 220,000 $ 0 $ 20,000

Exercise 8-9
(a)
Reba McIntyre, Inc. Entry for Estimated Bad Debts 4% of Gross Accounts Receivable

Gross accounts receivable $ 90,000

Percentage 4 % _________

4% of gross accounts receivable $ 3,600 Current allowance for doubtful accounts (1,750)

Required adjustment $ 1,850

Entry for estimated bad debts:

Dr. Cr.