On July 1, 2011, Apache Company sold a parcel of undeveloped land to a construction company for
$3,070,000. The book value of the land on Apache’s books was $1,220,000. Terms of the sale required a
down payment of $150,000 and 19 annual payments of $150,000 plus interest at an appropriate interest
rate due on each July 1 beginning in 2012. Apache has no significant obligations to perform services
after the sale.
How much gross profit will Apache recognize in both 2011 and 2012 assuming point of delivery profit
recognition? (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in
your response.)
Gross profit
2011
2012
$
$
A construction company entered into a fixed-price contract to build an office building for $24.5 million.
Construction costs incurred during the first year were $6.1 million and estimated costs to complete at the
end of the year were $9 million. The building was completed during the second year. Construction costs
incurred during the second year were $11.4 million.
How much gross profit will the company recognize in the first year and in the second year applying the
completed contract method? (Leave no cells blank - be certain to enter "0" wherever required. Enter
your answers in dollars not in millions. Omit the "$" sign in your response.)
Year 1
Gross profit
$
Year 2
$
Charter Corporation, which began business in 2011, appropriately uses the installment sales method of
accounting for its installment sales. The following data were obtained for sales made during 2011 and
2012:
2011
Installment sales
$358,000
Cost of installment sales
231,000
Cash collections on installment sales during:
2011
147,000
2012
—
2012
$350,000
246,000
100,000
121,000
Required:
(1)How much gross profit should Charter recognize in 2011 and 2012 from installment sales? (Round
Gross Profit percentages to the nearest whole percentage. Omit the "$" sign in your
response.)
Gross Profit
2011
$
2012
$
(2)What should be the balance in the deferred gross profit account at the end of 2011 and 2012? (Round
Gross Profit percentages to the nearest whole percentage. Omit the "$" sign in your
response.)
Balance in deferred gross profit account
2011
2012
$
$
On June 15, 2011, Sanderson Construction entered into a long-term construction contract to build a
baseball stadium in Washington D.C. for $225 million. The expected completion date is April 1 of 2013,
just in time for the 2013 baseball season. Costs incurred and estimated costs to complete at year-end for
the life of the contract are as follows ($ in millions):
2011
$ 40
120
Costs incurred during the year
Estimated costs to complete as of 12/31
2012
$80
60
2013
$50
—
Required:
(1) Determine the amount of gross profit or loss to be recognized in each of the three years using the
percentage-of-completion method. (Enter your answers in millions. Do not round intermediate
calculations. Round final answers to 2 decimal places. Loss amounts should be indicated with
a minus sign. Omit the "$" sign in your response.)
Year
Gross Profit (Loss)
($ in millions)
2011
$
2012
$
2013
$
(2) How much revenue will Sanderson report in its 2011 and 2012 income statements related to this
contract using the percentage-of-completion method? (Enter your answers in millions. Do not
roundintermediate calculations. Round final answers to 2 decimal places. Omit the "$" sign in
your response.)
Year
Revenue
($ in millions)
2011
$
2012
$
2013
$
(3) Determine the amount of gross profit or loss to be recognized in each of the three years using the
completed contract method. (Enter your answers in millions. Leave no cells blank - be certain to
enter "0" wherever required. Loss amounts should be indicated with a minus sign. Omit the
"$" sign in your response.)
Year
Gross Profit (Loss)
2011
2012
2013
Total project income
$
(4) Determine the amount of revenue, cost, and gross profit or loss to be recognized in each of the three
years using the cost recovery method that is required by IFRS. (Enter your answers in millions.
Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive
number except "Loss", loss amounts should be indicated with a minus sign. Omit the "$" sign
in your response.)
Revenue
2011
2012
2013
$
$
$
$
$
$
Cost
Gross profit (loss)
(5) Suppose the estimated costs to complete at the end of 2012 are $80 million instead of $60 million.
Determine the amount of gross profit or loss to be recognized in 2012 using the percentage-ofcompletion method. (Enter your answer in millions. Loss amount should be indicated with a
minus sign. Do not round intermediate calculations. Round final answers to 2 decimal
places. Omit the "$" sign in your response.)
2012
Gross profit (loss)
$
Ajax Company appropriately accounts for certain sales using the installment sales method. The
perpetual inventory system is used. Information related to installment sales for 2011 and 2012 is as
follows:
2011
2012
$255,000 $355,000
127,500 248,500
Sales
Cost of sales
Customer collections on:
2011 sales
2012 sales
120,000
100,000
150,000
Required:
(1) Calculate the amount of gross profit that would be recognized each year from installment sales. (Omit
the "$" sign in your response.)
2011
Gross profit
$
2012
$
(2) Prepare all necessary journal entries for each year. (Omit the "$" sign in your response.)
Date
2011
General Journal
To record installment sales
(Click to select)
To record cash collections from installment sales
(Click to select)
(Click to select)
To recognize gross profit from installment sales
(Click to select)
(Click to select)
2012
To record installment sales
(Click to select)
To record cash collections from installment sales
(Click to select)
(Click to select)
To recognize gross profit from installment sales
Debit
Credit
(Click to select)
(Click to select)
(3-a) Compute the following table, assuming that Ajax uses the cost recovery method to account for its
installment sales. (Leave no cells blank - be certain to enter "0" wherever required. Omit the
"$" sign in your response.)
Date
2011
Cash Collected
2011 sales
Cost Recovery
Gross Profit
$
$
$
$
$
$
$
$
$
2012
2011 sales
2012 sales
2012 totals
(3-b) Prepare all necessary journal entries for each year. (Omit the "$" sign in your response.)
Date
2011
General Journal
To record installment sales
(Click to select)
To record cash collections from installment sales
(Click to select)
(Click to select)
2012
To record installment sales
(Click to select)
To record cash collections from installment sales
(Click to select)
(Click to select)
To recognize gross profit from installment sales
Debit
Credit
(Click to select)
(Click to select)
In 2011, the Westgate Construction Company entered into a contract to construct a road for Santa Clara
County for $10,000,000. The road was completed in 2013. Information related to the contract is as
follows:
2011
$2,400,000
5,600,000
2,000,000
1,800,000
Cost incurred during the year
Estimated costs to complete as of year-end
Billings during the year
Cash collections during the year
2012
2013
$3,600,000 $2,125,000
2,000,000
0
4,000,000 4,000,000
3,600,000 4,600,000
Westgate uses the percentage-of-completion method of accounting for long-term construction
contracts.
Required:
(1) Calculate the amount of gross profit to be recognized in each of the three years. (Do not round
intermediate calculations. Omit the "$" sign in your response.)
Gross profit
2011
2012
2013
$
$
$
(2) In the journal below, complete the necessary journal entries for each of the years (credit various
accounts for construction costs incurred). (Do not round intermediate calculations. Omit the "$"
sign in your response.)
2011
General Journal
To record construction costs.
Debit
2012
Credit
Debit
(Click to select)
(Click to select)
To record progress billings.
(Click to select)
(Click to select)
To record cash collections.
(Click to select)
(Click to select)
To record gross profit.
(Click to select)
(Click to select)
(Click to select)
(3) Complete the information required below to prepare a partial balance sheet for 2011 and 2012
showing any items related to the contract. (Do not round intermediate calculations. Amounts to
be deducted should be indicated with minus sign. Omit the "$" sign in your response.)
Credit
Balance sheet
2011
2012
Current assets:
(Click to select)
$
(Click to select)
Less:
$
$
$
(Click to select)
(Click to select)
(4) Calculate the amount of gross profit to be recognized in each of the three years, assuming the
following costs incurred and costs to complete information. (Do not round intermediate
calculations. Round your answers to the nearest dollar amount. Loss amounts should be
indicated with a minus sign. Omit the "$" sign in your response.)
Costs incurred during the year
Estimated costs to complete as of year-end
Gross profit (loss)
2011
2012
2013
$2,400,000 $3,800,000 $3,125,000
5,600,000 3,100,000
0
2011
2012
2013
$
$
$
(5) Calculate the amount of gross profit to be recognized in each of the three years, assuming the
following costs incurred and costs to complete information. (Do not round intermediate
calculations. Loss amounts should be indicated with a minus sign. Omit the "$" sign in your
response.)
Costs incurred during the year
Estimated costs to complete as of year-end
Gross profit (loss)
2011
2012
2013
$2,400,000 $3,800,000 $3,825,000
5,600,000 4,100,000
0
2011
2012
2013
$
$
$
In 2011, the Westgate Construction Company entered into a contract to construct a road for Santa Clara
County for $10,000,000. The road was completed in 2013. Information related to the contract is as
follows:
2011
$2,400,000
5,600,000
2,000,000
1,800,000
Cost incurred during the year
Estimated costs to complete as of year-end
Billings during the year
Cash collections during the year
2012
2013
$3,600,000 $2,125,000
2,000,000
0
4,000,000 4,000,000
3,600,000 4,600,000
Westgate uses the completed contract method of accounting for long-term construction contracts.
Required:
(1) Calculate the amount of gross profit to be recognized in each of the three years. (Leave no cells
blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)
Gross Profit
2011
2012
2013
$
$
$
(2) In the journal below, complete the necessary journal entries for each of the years (credit various
accounts for construction costs incurred). (Leave no cells blank - be certain to enter "0" wherever
required. Omit the "$" sign in your response.)
2011
General Journal
To record construction costs.
Debit
2012
Credit
Debit
(Click to select)
(Click to select)
To record progress billings.
(Click to select)
(Click to select)
To record cash collections.
(Click to select)
(Click to select)
To record gross profit.
(Click to select)
(Click to select)
(Click to select)
(3) Complete the information required below to prepare a partial balance sheet for 2011 and 2012
showing any items related to the contract. (Leave no cells blank - be certain to enter "0" wherever
required. Amounts to be deducted should be indicated with minus sign. Omit the "$" sign in
your response.)
Credit
Balance sheet
2011
2012
Current assets:
(Click to select)
$
(Click to select)
Less:
$
$
(Click to select)
(Click to select)
(4) Calculate the amount of gross profit to be recognized in each of the three years assuming the
following costs incurred and costs to complete information. (Leave no cells blank - be certain to
enter "0" wherever required. Loss amounts should be indicated with a minus sign. Omit the
"$" sign in your response.)
Costs incurred during the year
Estimated costs to complete as of year-end
Gross profit (loss)
2011
2012
2013
$2,400,000 $3,800,000 $3,125,000
5,600,000 3,100,000
0
2011
2012
2013
$
$
$
(5) Calculate the amount of gross profit to be recognized in each of the three years assuming the
following costs incurred and costs to complete information. (Leave no cells blank - be certain to
enter "0" wherever required. Loss amounts should be indicated with a minus sign. Omit the
"$" sign in your response.)
Costs incurred during the year
Estimated costs to complete as of year-end
Gross profit (loss)
2011
2012
2013
$2,400,000 $3,800,000 $3,825,000
5,600,000 4,100,000
0
2011
2012
2013
$
$
$
Presented below are condensed financial statements adapted from those of two actual companies
competing in the pharmaceutical industry—Johnson and Johnson (J&J) and Pfizer, Inc. ($ in millions,
except per share amounts).
Note: Because two-year comparative statements are not provided, you should use year-end balances
in place of average balances as appropriate.
Balance Sheets
($ in millions, except per share data)
J&J
Assets
Cash
Short-term
investments
Accounts
receivable
(net)
Inventories
Other
current assets
$
Current
assets
Property,
plant, and
equipment
(net)
Intangibles
and other
assets
Total
assets
Liabilities
and
Shareholders'
Equity
Accounts
payable
Short-term
notes
Other
current
liabilities
Current
liabilities
Long-term
debt
Other longterm liabilities
Total
liabilities
5,377
Pfizer
$
1,520
4,146
10,432
6,574
8,775
3,588
5,837
3,310
3,177
22,995
29,741
9,846
18,287
15,422
68,747
$
48,263
$
116,775
$
4,966
$
2,601
1,139
8,818
7,343
12,238
13,448
23,657
2,955
5,755
4,991
21,986
21,394
51,398
Common
stock (par and
additional
paid-in
capital)
Retained
earnings
Accumulated
other
comprehensiv
e income
(loss)
Less:
treasury stock
and other
equity
adjustments
Net sales
Cost of
goods sold
29,382
195
(6,164)
(31,250)
26,869
65,377
48,263
$
116,775
$
Income Statements
41,862
$
45,188
12,176
9,832
29,686
35,356
19,763
28,486
(385)
Income
before taxes
Tax expense
Basic net
income per
share
30,503
$
Gross profit
Operating
expenses
Other
(income)
expense—net
Net income
67,050
(590)
Total
shareholders'
equity
Total
liabilities and
shareholders'
equity
3,120
3,610
10,308
3,260
3,111
1,621
$
7,197
$
1,639*
$
2.42
$
0.22
* This is before income from discontinued operations. There were no other separately reported items for
either company. Evaluate and compare the two companies by responding to the following questions.
Required:
(1-a) Compute the receivables turnover for both the companies. (Round your answers to 2 decimal
places.)
Receivables Turnover
J&J
times
Pfizer
times
(1-b) Compute the average collection for both the companies. (Consider 365 days a year. Round your
answers to the nearest whole days.)
Average Collection
Period
J&J
days
Pfizer
days
(1-c) Which of the two companies appears more efficient in collecting its accounts receivable?
(Click to select)
(1-d) Compute the inventory turnover for both the companies. (Round your answers to 2 decimal
places.)
Inventory Turnover
J&J
times
Pfizer
times
(1-e) Compute the average days in inventory for both the companies. (Consider 365 days a year.
Round your answers to the nearest whole number.)
Average Days in Inventory
J&J
days
Pfizer
days
(1-f) Which of the two companies appears more efficient in managing its inventory?
(Click to select)
(2-a) Compute the rate of return on assets for both the companies. (Round your answers to 1 decimal
place. Omit the "%" sign in your response.)
Rate of Return on Assets
J&J
%
Pfizer
%
(2-b) Which of the two firms had greater earnings relative to resources available?
(Click to select)
(3-a) Compute the profit margin, asset turnover and return on assets.(Round your answers to 2
decimal places.Omit the "%" sign in your response.)
Profit Margin
Asset Turnover
Return on Assets
J&J
%
times
%
Pfizer
%
times
%
(3-b) Have the two companies achieved their respective rates of return on assets with similar
combinations of profit margin and turnover?
(Click to select)
(4-a) Compute the rate of return on shareholders’ equity for both the companies. (Round your answers
to 1 decimal place. Omit the "%" sign in your response.)
Shareholders’ Equity
J&J
%
Pfizer
%
(4-b) From the perspective of a common shareholder, which of the two firms provided a greater rate of
return?
(Click to select)
(5) Compute the equity multiplier shareholders’ equity for both the companies. (Round your answers to
2 decimal places.)
Equity multiplier
J&J
Pfizer