Intermediate Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText -- Access Card Package (2nd Edition)
2nd Edition
ISBN: 9780134833118
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Chapter 8, Problem 8.4P
To determine
To prepare: The
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Circuit Fitness (CF) sells customized exercise equipment to fitness centers. On February 2nd, 2022, the sales manager for CF obtained a signed contract from Suburban Fitness Center (SFC) for all of the equipment for their new fitness center. The new fitness center is currently in the design stage and has a projected opening date of March 15, 2022. The contract requires CF to deliver the equipment on March 1, 2022.
The contract specifies that the SFC will pay $300,000 for the equipment on March 31, 2023.
The amount of interest on similar projects for this time period equates to $27,000. CF has significant experience in these types of transactions and a significant revenue reversal is not expected to occur.
Will the interest be incorporated into the transaction price (yes/no)
If the interest is incorporated into the price will the company recognize interest expense or interest income?
c. What is the transaction price?
Circuit Fitness (CF) sells customized exercise equipment to fitness centers. On September 1st, 2021, the sales manager for CF obtained a signed contract from Suburban Fitness Center (SFC) for all of the equipment for their new fitness center. The new fitness center is currently in the design stage and has a projected opening date of November 1, 2022. CF will deliver the equipment on October 1, 2022.
The contract specifies that the SFC will pay $1,400,000 within 7 days of the contract being signed by both parties. SFC made the payment on September 5, 2021.
The amount of interest on similar projects for this time period equates to $120,000. CF has significant experience in these types of transactions and a significant revenue reversal is not expected to occur.
Will the interest be incorporated into the transaction price (yes/no)
If the interest is incorporated into the price will interest expense be recognized or interest income?
What is the transaction price?
This problem has subparts that still need to be answered
Assume Avaya contracted to provide a customer with Internet infrastructure for $2,350,000. The project began in 2024 and was completed in 2025. Data relating to the contract are summarized below:
2024
2025
Costs incurred during the year
$ 328,000
$ 1,830,000
Estimated costs to complete as of 12/31
1,312,000
0
Billings during the year
436,000
1,690,000
Cash collections during the year
341,000
1,785,000
Required:
Compute the amount of revenue and gross profit or loss to be recognized in 2024 and 2025, assuming Avaya recognizes revenue over time according to percentage of completion.
Compute the amount of revenue and gross profit or loss to be recognized in 2024 and 2025, assuming this project does not qualify for revenue recognition over time.
Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2024, assuming Avaya recognizes revenue over time…
Chapter 8 Solutions
Intermediate Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText -- Access Card Package (2nd Edition)
Ch. 8 - What are the primary issues involved in revenue...Ch. 8 - What is the fundamental principle underlying the...Ch. 8 - What is the fundamental principle underlying the...Ch. 8 - Prob. 8.4QCh. 8 - Prob. 8.5QCh. 8 - How is a performance obligation defined?Ch. 8 - What are the two criteria to define a good or...Ch. 8 - Prob. 8.8QCh. 8 - What principles regarding timing and measurement...Ch. 8 - Prob. 8.10Q
Ch. 8 - What is variable consideration and what factors...Ch. 8 - Describe and contrast the two approaches used to...Ch. 8 - Prob. 8.13QCh. 8 - What factors should accountants consider to...Ch. 8 - Prob. 8.15QCh. 8 - How does a seller account for any consideration...Ch. 8 - Prob. 8.17QCh. 8 - What are the two exceptions to the general rule...Ch. 8 - What are the three criteria required to recognize...Ch. 8 - When an entity does not meet the three criteria...Ch. 8 - Prob. 8.21QCh. 8 - Prob. 8.22QCh. 8 - How does a firm estimate the degree completed...Ch. 8 - Can a firm record inventory out on consignment as...Ch. 8 - What method do agents in a transaction use to...Ch. 8 - Prob. 8.26QCh. 8 - What qualitative disclosures do the standards...Ch. 8 - All of the following are elements of a contract...Ch. 8 - Prob. 8.2MCCh. 8 - Telecom Co. enters into a two-year contract with a...Ch. 8 - The transaction price must reflect the time value...Ch. 8 - Prob. 8.5MCCh. 8 - When allocating the transaction price to separate...Ch. 8 - Which of the following indicators is not...Ch. 8 - During Yoar 1 Moriwothor Construction Company...Ch. 8 - All of the following are indicators that the...Ch. 8 - Prob. 8.10MCCh. 8 - Prob. 8.11MCCh. 8 - Identify a Contract with a Customer. Complete the...Ch. 8 - Prob. 8.2BECh. 8 - Identifying Performance Obligations. Perfect Party...Ch. 8 - Identifying Performance Obligations. Perfect Party...Ch. 8 - Estimating Variable Consideration. Gear Garage...Ch. 8 - Estimating Variable Consideration. Using the...Ch. 8 - Estimating Variable Consideration. Sellet...Ch. 8 - Estimating Variable Consideration. Seliet...Ch. 8 - Prob. 8.9BECh. 8 - Allocation of Transaction Price. Martin Software...Ch. 8 - Prob. 8.11BECh. 8 - Allocation of Transaction Price. Sycamore Sidewalk...Ch. 8 - Allocation of Transaction Price. Sycamore enters...Ch. 8 - Prob. 8.14BECh. 8 - Allocation of Transaction Price. Using the...Ch. 8 - When to Recognize Revenue. For each scenario...Ch. 8 - Prob. 8.17BECh. 8 - Prob. 8.18BECh. 8 - Percentage-of-Completion Method, Journal Entries....Ch. 8 - Prob. 8.20BECh. 8 - Sales with the Right of Return. Both incorporated...Ch. 8 - Sales with the Right of Return. Using the...Ch. 8 - Sales Returns. Historically, about 5% or the...Ch. 8 - Sales on Consignment. Hanna Lighting recertify...Ch. 8 - Determining Performance Obligations. Pagit Inc, a...Ch. 8 - Prob. 8.2ECh. 8 - Estimating Variable Consideration. King Rat Pest...Ch. 8 - Prob. 8.4ECh. 8 - Prob. 8.5ECh. 8 - Prob. 8.6ECh. 8 - Allocation of Variable Consideration. Green-Up Inc...Ch. 8 - Allocation of Variable Consideration. Green-Up Inc...Ch. 8 - Prob. 8.9ECh. 8 - Prob. 8.10ECh. 8 - Determination of When to Recognize Revenue. Far...Ch. 8 - Prob. 8.12ECh. 8 - Percentage-of-Completion Method. Gary Construction...Ch. 8 - Prob. 8.14ECh. 8 - Prob. 8.15ECh. 8 - Prob. 8.16ECh. 8 - Sales with the Right of Return. Webster Hall, Inc....Ch. 8 - Prob. 8.18ECh. 8 - Prob. 8.19ECh. 8 - Other Principal Agent Transactions, Net Revenue...Ch. 8 - Prob. 8.1PCh. 8 - Prob. 8.2PCh. 8 - Comprehensive Revenue Recognition Problem. Casale...Ch. 8 - Prob. 8.4PCh. 8 - Determining When to Recognize Revenue. Megrew...Ch. 8 - Prob. 8.6PCh. 8 - Prob. 8.7PCh. 8 - Prob. 8.8PCh. 8 - Percentage-of-Completion Method. R Wayne Computer...Ch. 8 - Prob. 8.10PCh. 8 - Prob. 8.11PCh. 8 - Sales on Consignment. Pablo Products. Ltd sells...Ch. 8 - Prob. 1JCCh. 8 - Prob. 1FSCCh. 8 - Prob. 1SSCCh. 8 - Basis for Conclusions Case 1: Control According to...
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