Fat Boys Construction started a fixed price construction job in 2016 with a contract price of $20 million. The unrest in the Middle East during 2016 resulted in unpredicted increases in the price of oil and gas. This resulted in a sharp increase in material costs for the company during that year. By 2017, cost overruns on the project were incurred, however, Fat Boys was able to complete the project in the end of 2018 and remain profitable. The following is information related to the contract: Contract price: $20,000,000 2016 2017 2018 Costs till date $4,000,000 $8,000,000 $12,000,000 Estimated total costs $12,000,000 $12,000,000 $12,000,000 Billings during the year $3,600,000 $5,800,000 $10,600,000 Collections during the year $3,200,000 $5,800,000 $11,000,000 Required: Prepare the percentage completion method and prepare journal entries

Fat Boys Construction started a fixed price construction job in 2016 with a contract price of $20 million. The unrest in the Middle East during 2016 resulted in unpredicted increases in the price of oil and gas. This resulted in a sharp increase in material costs for the company during that year. By 2017, cost overruns on the project were incurred, however, Fat Boys was able to complete the project in the end of 2018 and remain profitable. The following is information related to the contract: Contract price: $20,000,000 2016 2017 2018 Costs till date $4,000,000 $8,000,000 $12,000,000 Estimated total costs $12,000,000 $12,000,000 $12,000,000 Billings during the year $3,600,000 $5,800,000 $10,600,000 Collections during the year $3,200,000 $5,800,000 $11,000,000 Required: Prepare the percentage completion method and prepare journal entries

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter16: Accounting Periods And Methods

Section: Chapter Questions

Problem 40P

See similar textbooks

Similar questions

Swallow Corp. has a contract to construct a $5,000,000 cruise ship at an estimated cost of $4,000,000. The company will begin construction of the cruise ship in early January 2011 and expects to complete the project sometime in late 2014. Swallow Corp. has never constructed a cruise ship before, and the customer has never operated a cruise ship. Due to this and other circumstances, Swallow Corp. believes there are inherent hazards in the contract beyond the normal, recurring business risks. Swallow Corp. expects to recover all its costs under the contract. During 2011 and 2012, the company has the following activity: 2011 2012 Costs to date 980,000 $ $2,040,000 Estimated costs to complete 3,020,000 1,960,000 Progress billings during the year 1,000,000 1,000,000 Cash collected during the year 648,000 1,280,000 On its statement of financial position at December 31, 2012, what amount will be reported for accounts…
Your company has won a one-year contract that was planned to start on January 1, 2016 and be completed by December 31, 2016. The work that was to be performed by the engineering department was estimated at 1000 hours per month for the duration of the twelve-month project using pay grade 7 employees (i.e., regular engineers). The customer informs you that they wish to start the project on July 1 rather than January 1, and they assume that there is no financial impact on the total cost of the project. According to company policy, in 2016 the project account would be charged at a rate of $51 per hour for grade 7 employees, plus an overhead rate of 150%. Also, a salary increase will take effect on January 1, 2017, so the hourly rate will be $54 in 2017 for the grade 7 employees. Moreover, it is expected that the overhead rate will be increased to 155% in 2017. Is there a financial impact on the total cost of the project, and if so, how much of an impact? The escalation reserve should be…
Jireh Limited also manufactures prefab components for the housing industry. They have just been offered a new four year contract to supply a component, subject to them meeting certain quality requirements set by GREDA Ghana. The production manager is concerned that the current machine, which has been fully depreciated, will not be able to meet the stringent quality controls that will be required because the technology is obsolete, and the machine is unreliable. The company currently spends £50,000 per year to maintain and operate this machine which has no secondhand market value. On the basis of the production managerʼs recommendation, management has decided to replace the current machine. It is estimated that the replacement machine will cost £1 million with a four-year useful life. The companyʼs depreciation policy is to use a 20% reducing balance method over the life of the asset. As part of the purchase agreement for the new machine, the suppliers are offering a special maintenance…
Axcel Software began a new development project in 2015. The project reached technological feasibility on June 30, 2016, and was available for release to customers at the beginning of 2017. Development costs incurred prior to June 30, 2016, were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000. The 2017 revenues from the sale of the new software were $4,000,000, and the company anticipates additional revenues of $6,000,000. The economic life of the software is estimated at four years. Capitalized software costs are: A. $0. B. $3,200,000. C. $1,400,000. D. $4,600,000
Artisan Metalworks has a bottleneck in their production that occurs within the engraving department. Jamal Moore, the COO, is considering hiring an extra worker, whose salary will be $55,000 per year, to solve the problem. With this extra worker, the company could produce and sell 3,000 more units per year. Currently, the selling price per unit is $25 and the cost per unit is $7.85. Using the information provided, calculate the annual financial impact of hiring the extra worker.
Kolenda Technology Group has a contract to build a network for a customer for a total sales price of $10 million. Th is network will take an estimated three years to build, but considerable uncertainty surrounds total building costs because new technologies are involved. In other words, the outcome cannot be reliably measured, but it is probable that the costs up to the agreed upon price will be recovered. Assuming the following expenditures, how much revenue, expense (cost of construction), and income would the company recognize each year under IFRS and using the completed contract method under US GAAP? Th e amounts periodically billed to the customer and received from the customer are not necessarily equivalent to the amount of revenue being recognized in the period. For simplicity, assume Kolenda pays cash for all expenditures. 1 . At the end of Year 1, Kolenda has spent $3 million. 2 . At the end of Year 2, Kolenda has spent a total of $5.4 million. 3 . At the end of Year 3, the…
Able Plastics, an injection-molding firm, has negotiated a contract with a national chain of department stores. Plastic pencil boxes are to be produced for a 2-year period. If the firm invests $62,000 for special removal equipment to unload the completed pencil boxes from the molding machine, one machine operator can be eliminated saving $32,000 per year. The removal equipment has no salvage value and is not expected to be used after the 2-year production contract is completed. The equipment would be serviceable for about 15 years. What is the payback period? Should Able Plastics buy the removal equipment?
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
The Coldplay Company is evaluating an option to outsource production of its only product, while it will continue to perform all sales, marketing and administration duties in-house. Coldplay incurs direct materials, direct labor and variable overhead costs of $20 for each unit of product it manufactures. In addition, Coldplay incurs fixed manufacturing overhead costs annually of $1,000,000 and has annual production of 100,000 units. Coldplay has determined that it could avoid all fixed manufacturing costs if it outsources production. Based on a quantitative analysis only of this information, is the following statement true or false? Coldplay should make the decision to outsource production of its only product if a third-party supplier offers to manufacture and sell to Coldplay the product for less than $30 per unit. True or False?
Adams Corporation is considering the purchase of equipment employing advanced technology to lower production costs in a product line. At the end of the third year, management will close down the line and liquidate the remaining assets. The project will require an investment of $500,000 in plant upgrade and equipment and an additional $30,000 in working capital, which will be recovered in full at the end of year 3.Over its three-year useful life, the new equipment will reduce labor and rawmaterials usage sufficiently to cut operating costs from $9,000,000 to $8,850,000. It is estimated that the new equipment can be sold for $150,000 at the end of year 3. If the new equipment were purchased, the old machine would be sold to another company for $170,000 rather than be traded in for the new equipment. If the old equipment is kept for three more years, the salvage value would be reduced to $70,000.Adams management uses 10% to discount the cash flows. Decide whether replacement is justified…
Concrete Company enters into a contract with a customer to build a warehouse for $200,000, with a performance bonus of $40,000 that will be paid based on the timing of completion. The performance bonus will be paid fully if completed by the agree-upon date. The performance bonus decreases by $10,000 per week for every week beyond the agreed-upon completion date. Management estimates that there is a 55% probability that he will complete the project on time, a 30% probability that it will be completed 1 week late, and a 15% probability that it will be completed 2 weeks late. (1). Determine the transaction price that Concrete should compute for this agreement. (2). Assuming that Concrete believes that the probability for completing the project on time is 90% and otherwise it will be finished 1 week late. Determine the transaction price.
Consider each of the following scenarios separately:Scenario 1: Crown Construction Company entered into a contract with Star Hotel for building a highly sophisticated, customized conference room to be completed for a fixed price of $400,000. Nonrefundable progress payments are made on a monthly basis for work completed during the month. Legal title to the conference room equipment is held by Crown until the end of the construction project, but if the contract is terminated before the conference room is finished, Star retains the partially completed job and must pay for any work completed to date.Scenario 2: Regent Company entered into a contract with Star Hotel for constructing and installing a standard designed gym for a fixed price of $400,000. Nonrefundable progress payments are made on a monthly basis for work completed during the month. Legal title to the gym passes to Star upon completion of the building process. If Star cancels the contract before the gym construction is…

SEE MORE QUESTIONS

Recommended textbooks for you

SWFT Comprehensive Volume 2019

Accounting

ISBN:

9780357233306

Author:

Maloney

Publisher:

Cengage

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

SWFT Comprehensive Volume 2019

Accounting

ISBN:

9780357233306

Author:

Maloney

Publisher:

Cengage

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

SEE MORE TEXTBOOKS

GET THE APP

About FAQ Academic Integrity Sitemap Document Sitemap

Contact Bartleby Contact Research (Essays)High School Textbooks Literature Guides Concept Explainers by Subject Essay Help Mobile App

GET THE APP

Privacy

Your CA Privacy Rights

Your NV Privacy Rights

About Ads

Manage My Data

bartleby, a Learneo, Inc. business

	2016	2017	2018
Costs till date	$4,000,000	$8,000,000	$12,000,000
Estimated total costs	$12,000,000	$12,000,000	$12,000,000
Billings during the year	$3,600,000	$5,800,000	$10,600,000
Collections during the year	$3,200,000	$5,800,000	$11,000,000