🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
Accounting
9
answers
0
watching
34
views
13 Dec 2019

When IFRS uses the cost recovery method to account for a long-term contract,:

A. Revenue typically is recognized in excess of costs incurred early in the life of the contract.

B. Costs in excess of revenue are typically recognized early in the life of the contract.

C. Revenue equal to costs are typically recognized early in the life of the contract.

D. Revenue is based on contract completion, not on costs, early in the life of the contract.

Watch
9
answers
0
watching
34
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Unlock all answers

Get 1 free homework help answer.
Get unlimited access
Already have an account? Log in
Share
Get unlimited access
Already have an account? Log in
Share
Get unlimited access
Already have an account? Log in
Share
Get unlimited access
Already have an account? Log in
Share
Get unlimited access
Already have an account? Log in
Share
Get unlimited access
Already have an account? Log in
Share
Get unlimited access
Already have an account? Log in
Share
Get unlimited access
Already have an account? Log in
Share
Jarrod Robel
Jarrod RobelLv2
17 Dec 2019
Get unlimited access
Already have an account? Log in
Share

Related questions

Citation Builders, Inc., 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 2018, 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: 2018 2019 2020 Costs incurred during the year $ 4,600,000 $ 10,925,000 $ 5,175,000 Estimated costs to complete as of year-end 13,800,000 5,175,000 — Billings during the year 2,300,000 11,500,000 9,200,000 Cash collections during the year 2,070,000 10,130,000 10,800,000 Also during 2018, Citation began a development consisting of 12 identical homes. Citation estimated that each home will sell for $860,000, but individual sales prices are negotiated with buyers. Deposits were received for eight of the homes, three of which were completed during 2018 and paid for in full for $860,000 each by the buyers. The completed homes cost $645,000 each to construct. The construction costs incurred during 2018 for the nine uncompleted homes totaled $3,870,000. Required: 1. Which method is most equivalent to recognizing revenue at the point of delivery? 2. Answer the following questions assuming that Citation uses the completed contract method for its office building contracts: 2-a. How much revenue related to this contract will Citation report in its 2018 and 2019 income statements? 2-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2018 and 2019? 2-c. What will Citation report in its December 31, 2018, balance sheet related to this contract? (Ignore cash.) 3. Answer the following questions assuming that Citation uses the percentage-of-completion method for its office building contracts. 3-a. How much revenue related to this contract will Citation report in its 2018 and 2019 income statements? 3-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2018 and 2019? 3-c. What will Citation report in its December 31, 2018, balance sheet related to this contract? (Ignore cash.) 4. Assume the same information for 2018 and 2019, but that as of year-end 2019 the estimated cost to complete the office building is $10,350,000. Citation uses the percentage-of-completion method for its office building contracts. 4-a. How much revenue related to this contract will Citation report in the 2019 income statement? 4-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2019? 4-c. What will Citation report in its 2019 balance sheet related to this contract? (Ignore cash.) 5. Which method of accounting should Citation Builders, Inc adopt for its single-family houses? 6. What will Citation report in its 2018 income statement and 2018 balance sheet related to the single-family home business (ignore cash in the balance sheet)?

On January 11, 2013, ProsCo signed a $2.60 million contract to construct an office and warehouse for a small wholesale company. The project was originally expected to be completed in two years, but difficulties in hiring a sufficient pool of skilled workers extended the completion date by an extra year. As well, significant increases in the price of steel in the second year resulted in cost overruns on the project. ProsCo was able to negotiate a partial recovery of these costs, and the total contract value was adjusted to $3.20 million in the second year. Additional information from the project is as follows:

2013 2014 2015
Total contract value $2,600,00 $3,200,000 $3,200,000
Accumulated costs to date 528,000 2,160,000 3,700,000
Estimated costs to complete the project 1,672,000 1,440,000 0
Customer billings to date 300,000 2,000,000 3,200,000
Cash collected to date 100,000 2,000,000 3,200,000

(A) Calculate the amount of gross profit to be recognized each year using the percentage-of-completion method.

2013 2014 2015
Gross profit (loss) for the year

(B) Prepare all the required journal entries for the year ended December 31, 2014.

Assume that the increase in material costs has created significant uncertainty for the contract.

(C) Using the zero-profit method (IFRS), determine the amount of revenue and expense to report each year.

2013 2014 2015
Revenue
Expense

(D) Using the completed-contract method (ASPE), determine the amount of revenue and expense to report each year.

2013 2014 2015
Revenue
Expense

I. True/False 2 points

Indicate whether the sentence or statement is true or false.

____ 1. Revenues and gains are generally recognized when they are realized or realizable and they have been earned through substantial completion of the activities involved in the earnings process.

____ 2. The proportional performance method has been developed to reflect revenue earned on service contracts under which many acts of service are to be performed before the contract is completed.

____ 3. Beginning with the Tax Reform Act of 1986, the tax laws eliminated the use of the completed-contract method.

____ 4. The most popular input measure under percentage-of-completion accounting is the cost-to-cost method.

____ 5. Estimates of architects and engineers of percentage-of-completion are not acceptable under generally accepted accounting principles.

____ 6. At the conclusion of a construction contract, the balance in Construction in Progress will be exactly equal to the amount in Progress Billings on Construction Contracts when using the percentage-of-completion method.

____ 7. If analysis of construction contracts indicates that there will be an overall loss on the contract, the loss should immediately be recognized in full under the completed-contract method and the percentage-of-completion method.

____ 8. Under the cost recovery method, no income is recognized on a sale until the cost of the item sold is recovered through cash receipts with all subsequent receipts reported as revenues.

____ 9. The cost recovery method is the most conservative revenue recognition method.

____ 10. If a company is heavily involved in installment sales, the operating cycle of the business is normally defined as the average period of the installment contracts.

Weekly leaderboard

Home
Homework Help 3,900,000
Accounting 580,000
Start filling in the gaps now
Log in