3 Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructed under contract withreputable buyers. The homes are constructed in developments ranging from 10-20 homes and are typically sold during constructionor soon after. To secure the home upon completion, buyers must pay a deposit of 10% of the price of the home with the remainingbalance due upon completion of the house and transfer of title. Failure to pay the full amount results in forfeiture of the down payment.Occasionally, homes remain unsold for as long as three months after construction. In these situations, sales price reductions are usedto promote the sale.During 2021, Citation began construction of an office building for Altamont Corporation. The total contract price is $24 million, Costsincurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows2023$5,400,000Costs incurred during the yearEstimated costs to complete as of year endBillings during the yearCash collections during the yearIncome Statement (Partial)2021Also during 2021, Citation began a development consisting of 12 identical homes. Citation estimated that each home will sell for$880,000, but individual sales prices are negotiated with buyers. Deposits were received for eight of the homes, three of which werecompleted during 2021 and paid for in full for $880,000 each by the buyers. The completed homes cost $660.000 each to constructThe construction costs incurred during 2021 for the nine uncompleted homes totaled $3.960,000.E pyn5. Which method of accounting should Citation Builders, Inc adopt for its single-family houses?6. What will Citation report in its 2021 income statement and 2021 balance sheet related to the single-family home business (ignorecash in the balance sheet)?Current assetsWhat will Citation report in its 2021 income statement related to the single-family home business (ignore cash in the balancesheet)?Current liabilities20222021$4,000,000 $11,400,00014,400,0000Balance Sheet (Partial)At December 31, 20212,400,0002,160,000< Req 55,400,00012,000,00010,640,000< Req 6AWhat will Citation report in its 2021 balance sheet related to the single-family home business (ignore cash in the balancesheet)?9,600,00011,200,000Req 68 >Hag >Return to quest

Here discuss about the details of the completion contract method which can be incurred the revenue…

accounting should Citation Builders, Inc adopt for its single-family houses? 6. What will Citation report in its 2021 income statement and 2021 balance sheet related to the single-family home business (ignore cash in the balance sheet)?

accounting should Citation Builders, Inc adopt for its single-family houses? 6. What will Citation report in its 2021 income statement and 2021 balance sheet related to the single-family home business (ignore cash in the balance sheet)?

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 10P

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Citation Builders, Incorporated, builds office buildings and single-family homes. The office buildings are constructed under contract with reputable buyers. The homes are constructed in developments ranging from 10−20 homes and are typically sold during construction or soon after. To secure the home upon completion, buyers must pay a deposit of 10% of the price of the home with the remaining balance due upon completion of the house and transfer of title. Failure to pay the full amount results in forfeiture of the down payment. Occasionally, homes remain unsold for as long as three months after construction. In these situations, sales price reductions are used to promote the sale. During 2024, Citation began construction of an office building for Altamont Corporation. The total contract price is $23 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows: 2024 2025 2026 Costs incurred during…
Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructedunder contract with reputable buyers. The homes are constructed in developments ranging from 10–20 homesand are typically sold during construction or soon after. To secure the home upon completion, buyers must paya deposit of 10% of the price of the home with the remaining balance due upon completion of the house andtransfer of title. Failure to pay the full amount results in forfeiture of the down payment. Occasionally, homesremain unsold for as long as three months after construction. In these situations, sales price reductions are usedto promote the sale.During 2018, Citation began construction of an office building for Altamont Corporation. The total contractprice is $20 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for thelife of the contract are as follows:2018 2019 2020Costs incurred during the year $ 4,000,000 $…
A customer enters into a contract that conveys the right to use an explicitly specified retail unit for a period of five years. The property owner can require the customer to move into another retail unit; there are several retail units of similar quality and specification available.As the property owner has to pay for any relocation costs it can benefit economically from relocating the customer only if there is a new tenant that wants to occupy a large amount of retail space at a rate that is sufficient to cover the relocation costs. Those circumstances may arise, but they are not considered likely to occur.The contract requires the customer to sell his goods during the opening hours of the larger retail space. The customer decides on the mix of goods sold, the pricing of the goods sold and the quantities of inventory held. He further controls physical access to the retail unit throughout the five-year period of use.The rent that the customer has to pay includes a fixed amount plus a…
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Velstrom Ltd is considering outsourcing one of its products rather than producing it in its factory. The business allocates part of the total rental charge of the factory, based on floor area, on the section responsible for making the product. The section bears a charge of £20,000 per year. If the section were closed, the floor space released would be used for warehousing and, as a result, the business would give up the tenancy of an existing warehouse for which it is paying £25,000 a year. A business has approached Velstrom Ltd to offer £22,000 a year to sublet the released factory space. What will be the relevant benefit of releasing the factory space?
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In January, Prahbu purchased for $100,000 a new machine for use in an existing production line of his manufacturing business. Assume that the machine is a unit of property and is not a material or supply. Prahbu pays $4,075 to install the machine, and after the machine is installed, he pays $2,350 to perform a critical test on the machine to ensure that it will operate in accordance with quality standards. On November 1, the critical test is complete, and Prahbu places the machine in service on the production line. On December 3, Prahbu pays another $5,400 to perform periodic quality control testing after the machine is placed in service. How much will Prahbu be required to capitalize as the cost of the machine?
In April, F. W. Lang Company purchased an ice cream freezer and refrigeration compressor unit from Fleet for $2,160. Although the parties agreed to a written installment contract providing for an $850 down payment and eighteen installment payments, Lang made only one $200 payment upon receipt of the goods. One year later, Lang moved to a new location and took the equipment along without notifying Fleet. Two years after the sale, Lang disconnected the compressor from the freezer and used it to operate an air conditioner. Lang continued to use the compressor for that purpose until the sheriff seized the equipment and returned it to Fleet pursuant to a court order. Fleet then sold the equipment for $500 in what both parties conceded was a fair sale. Lang then brought an action charging that the equipment was defective and unusable for its intended purpose and sought to recover the down payment and expenses incurred in repairing the equipment. Fleet counterclaimed for the balance due under…
Several years ago Velvet Company purchased a small building adjacent to its manufacturing plant in order to have room for expansion when needed. Since the company had no immediate need for the extra space, the building was rented out to another company for rental revenue of $40,000 per year. The renter’s lease will expire next month, and rather than renewing the lease, Velvet Company has decided to use the building itself to manufacture a new product. Direct materials cost for the new product will total $40 per unit. It will be necessary to hire a supervisor to oversee production. Her salary will be $2,500 per month. Workers will be hired to manufacture the new product, with direct labor cost amounting to $18 per unit. Manufacturing operations will occupy all of the building space, so it will be necessary to rent space in a warehouse nearby in order to store finished units of product. The rental cost will be $1,000 per month. In addition, the company will need to rent equipment for use…