NP Construction liable under the
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HH Lumber had an exclusive three-year supply agreement with NP Construction. The contract called for lumber sales of $3,000,000 per year. After one year, NP Construction canceled the contract without cause. The court found NP Construction liable under the contract. HH Lumber had average gross profits of 25 percent and average net income of 10 percent of sales. HH Lumber's operating expenses average 60 percent fixed. The damages from the loss of this contract would be:
| A. |
$600,000.
|
|
| B. |
$570,000.
|
|
| C. |
$3,000,000.
|
|
| D. |
$1,140,000. |
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- Yankee Corp. agrees to provide Albany Company 24 months of coaching services. The contract sets the price at 4,000 per month, which is the normal stand-alone price that Yankee charges. After 16 months, Yankee and Albany agree to modify the contract. Yankee reduces the fee for the 8 remaining months to 3,800 per month, and Albany agrees to a 24-month extension at a cost of 3,600 per month. At the time that the contract is modified, Yankee is charging other customers 3,750 per month for the coaching service. Should Yankee and Albany treat the modification as a separate contract?On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at 12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps reduces the fee for the third year to 10,000, and Conklin agrees to a 4-year extension that will extend services through December 31, 2024, at a price of 15,000 per year. At the time that the contract is modified, Mopps is charging other customers 13,500 for the cleaning and janitorial service. Required: Should Mopps and Conklin treat the modification as a separate contract? If so how should Mopps account for the contract modification on December 31, 2020? Support your opinion by discussing the application to this case of the factors that need to be considered for determining the accounting for contract modifications.Murray Lumber had an exclusive three-year supply agreement with Stella Construction. The contract called for lumber sales of $4,400,000 per year. After one year, Stella Construction canceled the contract without cause. The court found Stella Construction liable under the contract. Murray Lumber had average gross profits of 40 percent and average net income of 10 percent of sales. Murray Lumber's operating expenses average 70 percent fixed. The damages from the loss of this contract would be: A. $2,728,000. B. $8,800,000. C. $1,364,000. D. $2,480,000.
- A construction company entered into a fixed-price contract to build an office building for $20 million. Construction costs incurred during the first year were $6 million and estimated costs to complete at the end of the yearwere $9 million. The building was completed during the second year. Construction costs incurred during the second year were $10 million. How much revenue, cost, and gross profit will the company recognize in the firstand second year of the contract applying the cost recovery method that is required by IFRS?Supplier Corp. enters into a government contract during the year to provide computer equipment for $4,400,000. The contract consists of a single performance obligation to provide specified equipment in three years. Total costs estimated by Supplier Corp. for the contract are $3,080,000 . The equipment is highly specialized and has no alternative uses. As negotiated in the contract, any costs incurred by Supplier Corp. plus a specified profit margin will be paid to Supplier Corp. in the event of a contract cancellation. Actual costs incurred during the year were $1,408,000 including unexpected cost overruns of $176,000 due to labor inefficiencies. a. Would revenue be recognized over time or at a point in time for this contract? Answer Recognize revenue over time b. Calculate (1) recognized revenue, (2) the gross profit, and (3) adjusted contract margin to be recorded during the year. 1. Recognized revenue Answer 2. Gross profit Answer 3. Adjusted contract margin Answer Note:- Do not…Prophet Company signed a long-term purchase contract to buy timber from the U.S. Forest Service at $300 per thousand board feet. Under these terms, Prophet must cut and pay $6,000,000 for this timber during the next year. Currently, the market value is $250 per thousand board feet. At this rate, the market price is $5,000,000. Jerry Herman, the controller, wants to recognize the loss in value on the year-end financial statements, but the financial vice president, Billie Hands, argues that the loss is temporary and should be ignored. Herman notes that market value has remained near $250 for many months, and he sees no sign of significant change. Instructions (a) What are the ethical issues, if any? (b) Is any particular stakeholder harmed by the financial vice president's decision? (c) What should the controller do?
- On July 1, 20x1, Wash Co. grants a franchisee the right to sell Wash Co.’s products in a specificmarket over a period of 10 years. The franchise contract requires an upfront fee of ₱800,000, whichincludes ₱100,000 for equipment that Wash Co. will provide to the franchisee. The amount reflects the stand-alone selling price of the equipment. In addition, the franchisee will pay a 10% sales-based royalty. Wash Co. has granted similar rights to other franchisees in other locations. Wash Co. regularly undertakes activities that promote the brand name nationally. Wash delivers theequipment to the franchisee on July 15, 20x1. The franchisee starts selling the products on August1, 20x1 and reports total sales of ₱600,000 for the year. How much total revenue is recognized fromthe contract in 20x1?a. 860,000 c. 213,259b. 760,000 d. 189,167ABC Corporation entered into a short forward contract for 1,000 tons of potato at a price of P12,250 to be exercised one year from now. The current market price on the contract date is P12,000 per ton. On the agreed delivery, the price increased to P12, 300. What is the gain/(loss) attributable to this contract?Sugar has entered into a long-term contract to build an asset for a customer, Hewer. Sugar will satisfy the performance obligation over time and has measured the progress towards satisfying the performance obligation at 45% at the year end. The price of the contract is $8 million. Sugar has spent $4.5 million to date, but the estimated costs to complete are $5.5 million. To date, Hewer has paid Sugar $3 million. What is the net liability that should be recorded in Sugar’s statement of financial position?
