«4 and expects to complete the project somefime in late 20x7. Lark corp. has ver constructed a cruise ship before, and the customer has never operated a cruise p. Due to this and other circumstances, Lark corp. believes there are inherent zards in the contract beyond the normal, recurring business risks. Lark corp. pects to recover all its costs under the contract. During 20x4 and 20x5, the mpany has the following acivty:

«4 and expects to complete the project somefime in late 20x7. Lark corp. has ver constructed a cruise ship before, and the customer has never operated a cruise p. Due to this and other circumstances, Lark corp. believes there are inherent zards in the contract beyond the normal, recurring business risks. Lark corp. pects to recover all its costs under the contract. During 20x4 and 20x5, the mpany has the following acivty:

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 5MC

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REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from 24,000 to 46,000 per year. The new machine will cost 80,000; and it will have an estimated life of 8 years and no salvage value. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. The applicable corporate tax rate is 40%, and the firm's WACC is 10%. The old machine has been fully depreciated and has no salvage value. Should the old riveting machine be replaced by the new one? Explain your answer.
Lark Corp. has a contract to construct a P5,000,000 cruise ship at an estimated cost of P4,000,000. The company will begin construction of the cruise ship in early January 20x4 and expects to complete the project sometime in late 20x7. Lark Corp. has never constructed a cruise ship before, and the customer has never operated a cruise ship. Due to this and other circumstances, Lark Corp. believes there are inherent hazards in the contract beyond the normal, recurring business risks. Lark Corp. expects to recover all its costs under the contract. During 20x4 and 20x5, the company has the following activity: 20x4 20x5Costs to date P 980,000 P2,040,000Estimated costs to complete 3,020,000 1,960,000Progress billings during the year 1,000,000 1,000,000Cash collected during the year 648,000 1,280,000For the year ended December 31, 20x5, how much revenue should Lark Corp. recognize on itsincome statement?P980,000P2,040,000P1,300,000P1,060,000
38) You are evaluating a potential investment in equipment. The equipment's basic price is $138,000, and shipping costs will be $4,100. It will cost another $20,700 to modify it for special use by your firm, and an additional $6,900 to install it. The equipment falls in the MACRS 3-year class that allows depreciation of 33% the first year, 45% the second year, 15% the third year, and 7% the fourth year. You expect to sell the equipment for 22,100 at the end of three years. The equipment is expected to generate revenues of $131,000 per year with annual operating costs of $67,000. The firm's marginal tax rate is 25.0%. What is the value of the after-tax cash flow associated with the sale of the equipment? $16,575 $19,545 $10,221 $7,666 $9,324
8. A nuclear power company is deciding whether tobuild a nuclear power plant at Diablo Canyon or atRoy Rogers City. The cost of building the powerplant is $70 million at Diablo and $95 million atRoy Rogers City. If the company builds at Diablo,however, and an earthquake occurs at Diablo duringthe next five years, construction will be terminatedand the company will lose $40 million (and will stillhave to build a power plant at Roy Rogers City).Without further expert information the companybelieves there is a 10% chance that an earthquakewill occur, at Diablo during the next five years. For$1.5 million, a geologist can be hired to analyze thefault structure at Diablo Canyon. She will predicteither that an earthquake will occur or that an earthquake will not occur. The geologist’s past recordindicates that she will predict an earthquake withprobability 0.90 if an earthquake will occur, andshe will predict no earthquake with probability 0.80if an earthquake will not occur. Should the…
19..Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,760,000. The project was begun in 2020 and completed in 2021. Cost and other data are presented below: 2020 2021Costs incurred during the year $399,000 $1,060,000 Estimated costs to complete 931,000 0 Billings during the year 485,000 1,275,000 Cash collections during the year 385,000 1,375,000 Assume that Beavis recognizes revenue on this contract over time according to the percentage of completion. Required:Prepare all journal entries to record costs, billings, collections, and profit recognition. (If no entry is required for a transaction/event, type "No journal entry required" in the first…
21 Beck Construction Company began work on a new building project on January 1, 2023. The project is to be completed by December 31, 2025, for a fixed price of $131 million. The following are the actual costs incurred and estimates of remaining costs to complete the project that were made by Beck's accounting staff: Years Actual costs incurred in each year Estimated remaining costs to complete the project (measured atDecember 31 of each year) 2023 $ 36 million $ 72 million 2024 $ 57 million $ 57 million 2025 $ 41 million $ 0 million Required: What amount of gross profit (or loss) would Beck record on this project in each year, assuming that Beck recognizes revenue for this project upon completion of the project?
12. Chuck Company operates an oil platform at the Pacific Ocean. An oil platform was built by the Company at a cost of P25,000,0000 on January 1, 2011, the present value of expected restoration costs at that time was P5,000,000. The oil platform has an estimated useful life of 20 years, with no residual value. On December 31, 2020, the Company was offered P18,000,000 to sell the platform. The selling costs would be P2,500,0000. The value in use of the platform is P13,000,000. How much is the impairment loss for the year 2020? Group of answer choices 2,500,000 500,000 None 2,000,000
4. Superior Piping Company recently received a contract to install 500,000 feet of new piping in Premier’s Nashville manufacturing facility. Its original labor cost budget for this one-year contract was $3,500,000. Due to its workload when it sold the contract, it planned to use its current employees, who average $50,000 compensation per year. However, in the meantime it has secured some other contracts on which it needs to put some of its current workers. Now, Superior plans to produce 25% of the needed work with workers from outside the company. Although it will have to pay the new workers the same rate as its current workers, it anticipates that the new workers will be 15% less productive than the ones it already employs. If you assume all workers begin on the first day of the project, what should be Superior’s new labor budget for this project? Group of answer choices $3,700,000 $3,600,000 $3,650,000 $3,550,000