Chapter 18 Essay

1014 Words Oct 3rd, 2012 5 Pages
E18-5
Organic Growth Company is presently testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant to five of its largest customers the unconditional right of return to these products if not fully satisfied. The right of return extends for 4 months. Organic Growth sells these seeds on account for $1,500,000 on January 2, 2012. Companies are required to pay the full amount due by March 15, 2012.

(a) Prepare the journal entry for Organic Growth at January 2, 2012, assuming Organic Growth estimates returns of 20% based on prior experience. (Ignore cost of goods sold.)
(b) Assume that one customer returns the seeds on March 1, 2012, due to unsatisfactory performance.
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The job was completed in 2012. The following information is available.

2010 2011 2012
Costs incurred to date $400,000 $825,000 $1,070,000
Estimated costs to complete 600,000 275,000 -0-
Billings to date 300,000 900,000 1,600,000
Collections to date 270,000 810,000 1,425,000

(a) Compute the amount of gross profit to be recognized each year assuming the percentage-of-completion method is used.

(b) Prepare all necessary journal entries for 2011.

(c) Compute the amount of gross profit to be recognized each year assuming the completed-contract method is used.

E18-15
In 2010 Gurney Construction Company agreed to construct an apartment building at a price of $1,200,000. The information relating to the costs and billings for this contract is shown below.

2010 2011 2012
Cost incurred to date $280,000 600,000 785,000
Estimated costs yet to be incurred 520,000 200,000 -0-
Customer billings to date 150,000 500,000 1,200,000
Collection of billings to date 120,000 320,000 940,000

(a) Assuming that the percentage-of-completion method is
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