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

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

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 13E: On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million....

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On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?
On June 1, 2021, Consulting Inc. enters into a contract with a customer to build a website for its start-up business for $100,000, plus a possible performance bonus. The contract includes the creation of the website to communicate information about the customer’s products, to sell products, and to collect payment for the products. The target completion date for the project is October 22, 2021. The pricing of the customized website includes a potential performance bonus to be paid to Consulting Inc. if the website is completed between October 1 - October 22, 2021. The performance bonus will be reduced each week closer to the October 22, 2021 deadline. A bonus will not be paid if the project is completed after October 22, 2021. Based on Consulting Inc.’s historical experience and the assessment of its current capabilities, the potential bonuses/probability are summarized in the table below: Completion Date Probability of Outcome Performance Bonus October 1, 2021…
Headland Company sells custom-made windows to Carla Vista Inc. for a new office building. The sale price for the windows is $270,000. Headland requires customers to provide a down payment of 20% before it designs and manufactures the windows to customer specifications. Carla Vista makes the down payment on December 10, 2025, and the windows are completed and delivered on April 3, 2026. (a) Prepare the entry for Headland when it receives the down payment. (If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record entries in the order displayed in the problem statement. List all debit entries before credit entries.) Date December 10, 2025 Account Titles and Explanation Debit Credit
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?
Infotech Bhd enters a contract on 1 January 2019 to produce software for a customer for RM7,000,000. Infotech Bhd receives RM2,000,000 from the customer upon contract signing and the balance at the completion of the contract. According to the contract, the customer controls the system during the creation of the program. Infotech Bhd estimates that it will take two years to complete the project and uses the number of labor hours to estimate the rate of completion. Infotech spends 40,000 hours in the first year of the contract and another 10,000 hours the second year Prepare the entries recorded by Infotech over the life of this contract. Assume that all payments are complete by the end of 2020
Caratini Company sells custom-made windows to Bryant Inc. for a new office building. The sale price for the windows is $275,000. Caratini requires customers to provide a down payment of 15% before it designs and manufactures the windows to customer specifications. Bryant makes the down payment on December 10, 2025, and the windows are completed and delivered on April 3, 2026.Instructions Prepare the entry for Caratini when it receives the down payment.Prepare the entry (or entries) for Caratini on April 3, 2026. The cost of the windows is $200,000.
Infotech Bhd enters a contract on 1 January 2019 to produce software for a customer for RM5,000,000. Infotech Bhd receives RM2,000,000 from the customer upon contract signing and the balance at the completion of the contract. According to the contract, the customer controls the system during the creation of the program. Infotech Bhd estimates that it will take two years to complete the project and uses the number of labor hours to estimate the rate of completion. Macro Tech spends 30,000 hours in the first year of the contract and another 20,000 hours the second year. Required: Prepare the entries recorded by Macro Tech over the life of this contract. Assume that all payments are complete by the end of 2020.
WCM Builders enters into a contract to build a shopping mall in 2019 for $6,000,000. Completion of the mall is expected to take 27 months and cost WCM $3,600,000. Upon signing the contract, WCM receives $600,000. During 2020, WCM incurs costs of $1,200,000 and receives a $1,000,000 progress payment. WCM’s forewoman estimates that the job is 50% complete at the end of 2020. How much income must WCM recognize in 2020 from the work done on the mall?
Elegance Esthetics Wholesalers Corporation sells various esthetics treatment tools, esthetic and spa supplies. In 2020, Elegance Esthetics signed a two-year contract with Saskatoon College to supply it with 100 esthetic tool and product kits for students in the college's esthetics program for each academic semester. The value of the contract is $231,600 based on four academic semesters over the two-year period. The kits are sold for $579 each. The cost of the kits is $472 each. The college can return any unsold kits to the company and Elegance estimates a return rate of 3%. Because the kits involve esthetic supplies and could potentially be contaminated, returned kits need to be scrapped and cannot be resold. Elegance shipped 100 kits for the September 2020 semester, 100 kits in January 2021 semester and another 100 kits in September 2021 semester. The kits are invoiced as soon as they are shipped (at the beginning of each semester) and payment is required within 30 days. The college…
WCM Builders enters into a contract to build a shopping mall in 2019 for $6,000,000. Completion of the mall is expected to take 27 months and cost WCM $3,600,000. Upon signing the contract, WCM receives $600,000. During 2019, WCM incurs costs of $1,200,000 and receives a $1,000,000 progress payment. WCM’s forewoman estimates that the job is 50% complete at the end of 2019. How much income must WCM recognize in 2019 from the work done on the mall? Do not round intermediate computations. WCM will recognize $ of gross income from the contract in 2019.
Sanders Construction Company enters into a contract to build a new football stadium for Central Illinois University on November 5, 2021. The contract is for $20 million and work is expected to be completed by August 1, 2022. Orange will receive a $2 million bonus if the work is completed by July 1, 2022. Total payment will be made upon completion of the stadium. Orange has built numerous stadiums and believes that there is a 80% chance that it will complete the project by July 1, 2022. What is the transaction price? Question 27 options: a) $20,000,000 b) $20,400,000 c) $21,600,000 d) $22 ,000,000
On February 1, 2023, Armen Inc. entered into a contract to deliver one of its specialty machines to Idris Inc. The contract requires Idris Inc to pay the contract price of $15,000 in advance on February 20, 2023. Idris Inc. pays Armen Inc on February 20, 2023, and Armen Inc delivers the machine (costing $12,600) on February 28, 2023 and Idris Inc starts using the machine on March 3, 2023. When should Armen Inc recognize revenue?