Question: On July 1, 2018, the Foster Company

> Two accounting students were discussing the timing of revenue recognition for long-term construction contracts. The discussion focused on which method was most like the typical revenue recognition method of recognizing revenue at the point of product del

> What are the five key steps a company follows to apply the core revenue recognition principle?

> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available in Connect. This material also is available under the Investor Relations li

> Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2015, are available in Connect. This m

> The birth of the Internet in the 1990s led to the creation of a new industry of online retailers such as Amazon, Overstock.com, and PCM, Inc., Many of these companies often act as intermediaries between the manufacturer and the customer without ever taki

> EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange C

> AuctionCo.com sells used products collected from different suppliers. Assume a customer purchases a used bicycle through AuctionCo.com for $300. AuctionCo.com agrees to pay the supplier $200 for the bicycle. The bicycle will be shipped to the customer by

> Curtiss Construction Company, Inc., entered into a fixed-price contract with Axelrod Associates on July 1, 2018, to construct a four-story office building. At that time, Curtiss estimated that it would take between two and three years to complete the pro

> [This is a variation of P 5–10 modified to focus on revenue recognition upon project completion.] Required: Complete the requirements of P 5–10 assuming that Westgate Construction’s contract with San

> In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows: Westgate recognizes revenue over time acco

> Tran Technologies licenses its functional intellectual property to Lyon Industries. Terms of the arrangement require Lyon to pay Tran $500,000 on April 1, 2018, when Lyon first obtains access to Tran’s intellectual property, and then to pay Tran a royalt

> Velocity, a consulting firm, enters into a contract to help Burger Boy, a fast-food restaurant, design a marketing strategy to compete with Burger King. The contract spans eight months. Burger Boy promises to pay $60,000 at the beginning of each month. A

> Assume the same facts as P 5–6. Required: 1. Assume that Super Rise anticipates it will earn the performance bonus, but is highly uncertain about its estimate given unfamiliarity with the building and uncertainty about its access to the elevators and rel

> Since 1970, Super Rise, Inc., has provided maintenance services for elevators. On January 1, 2018, Super Rise obtains a contract to maintain an elevator in a 90-story building in New York City for 10 months and receives a fixed payment of $80,000. The co

> On January 1, Revis Consulting entered into a contract to complete a cost reduction program for Green Financial over a six-month period. Revis will receive $20,000 from Green at the end of each month. If total cost savings reach a specific target, Revis

> Supply Club, Inc., sells a variety of paper products, office supplies, and other products used by businesses and individual consumers. During July 2018 it started a loyalty program through which qualifying customers can accumulate points and redeem those

> Assume the same facts as in P5–2, except that customers must pay $75 to purchase the extended warranty if they don’t purchase it with the $50 coupon that was included in the Protab Package. Creative estimates that 40%

> Assume that Pfizer, a large research-based pharmaceutical company, enters into a contract with a start-up biotechnology company called HealthPro and promises to: 1. Grant HealthPro the exclusive rights to use Pfizer’s Technology A for the life of its pat

> Creative Computing sells a tablet computer called the Protab. The $780 sales price of a Protab Package includes the following: • One Protab computer. • A 6-month limited warranty. This warranty guarantees that Creative

> Fit & Slim (F&S) is a health club that offers members various gym services. Required: 1. Assume F&S offers a deal whereby enrolling in a new membership for $700 provides a year of unlimited access to facilities and also entitles the member to receive a

> Olive Branch Restaurant Corporation sells franchises throughout the western states. On January 30, 2018, the company entered into the following franchise agreement with Jim and Tammy Masters: 1. The initial franchise fee is $1.2 million. $200,000 is paya

> [This is a variation of P 5–10 modified to focus on IFRS.] Required: Complete the requirements of P 5–10 assuming that Westgate Construction reports under IFRS and concludes that the percentage-of-completion method is

> Mulcahey Builders (MB) remodels office buildings in low-income urban areas that are undergoing economic revitalization. MB typically accepts a 25% down payment when they complete a job and a note that requires that the remainder be paid in three equal in

> On August 31, 2018, the Silva Company sold merchandise to the Bendix Corporation for $500,000. Terms of the sale called for a down payment of $100,000 and four annual installments of $100,000 due on each August 31, beginning August 31, 2019. Each install

> Ajax Company appropriately accounts for certain sales using the installment sales method. The perpetual inventory system is used. Information related to installment sales for 2018 and 2019 is as follows: Required: 1. Calculate the amount of gross profi

> Reagan Corporation computed income from continuing operations before income taxes of $4,200,000 for 2018. The following material items have not yet been considered in the computation of income: 1. The company sold equipment and recognized a gain of $50,0

> 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 so

> Assume the same facts as in E 5–10. In E 5–10 Rocky Guide Service provides guided 1–5 day hiking tours throughout the Rocky Mountains. Wilderness Tours hires Rocky to lead various tours that Wilderness sells. Rocky receives $1,000 per tour day, and shor

> 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. Nonrefundab

> Rocky Guide Service provides guided 1–5 day hiking tours throughout the Rocky Mountains. Wilderness Tours hires Rocky to lead various tours that Wilderness sells. Rocky receives $1,000 per tour day, and shortly after the end of each month Rocky learns wh

> Thomas Consultants provided Bran Construction with assistance in implementing various cost-savings initiatives. Thomas’s contract specifies that it will receive a flat fee of $50,000 and an additional $20,000 if Bran reaches a prespecified target amount

> On May 1, 2018, Meta Computer, Inc., enters into a contract to sell 5,000 units of Comfort Office Keyboard to one of its clients, Bionics, Inc., at a fixed price of $95,000, to be settled by a cash payment on May 1. Delivery is scheduled for June 1, 2018

> A New York City daily newspaper called “Manhattan Today” charges an annual subscription fee of $135. Customers prepay their subscriptions and receive 260 issues over the year. To attract more subscribers, the company offered new subscribers the ability t

> Clarks Inc., a shoe retailer, sells boots in different styles. In early November the company starts selling “Sun-Boots” to customers for $70 per pair. When a customer purchases a pair of SunBoots, Clarks also gives the customer a 30% discount coupon for

> On March 1, 2018, Gold Examiner receives $147,000 from a local bank and promises to deliver 100 units of certified 1-oz. gold bars on a future date. The contract states that ownership passes to the bank when Gold Examiner delivers the products to Brink’s

> Access the FASB Standards Codification at the FASB website (www.fasb.org). Required: Determine the specific citation for accounting for each of the following items: 1. On what basis is a contract’s transaction price allocated to its performance obligati

> Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer’s home

> Ski West, Inc., operates a downhill ski area near Lake Tahoe, California. An all-day adult lift ticket can be purchased for $85. Adult customers also can purchase a season pass that entitles the pass holder to ski any day during the season, which typical

> Access the FASB’s Accounting Standards Codification at the FASB website (www.fasb.org). Required: Determine the specific citation for accounting for each of the following items: 1. What are the five key steps to applying the revenue recognition principl

> Horizon Corporation manufactures personal computers. The company began operations in 2013 and reported profits for the years 2013 through 2016. Due primarily to increased competition and price slashing in the industry, 2017’s income statement reported a

> On October 1, 2018, the Submarine Sandwich Company entered into a franchise agreement with an individual. In exchange for an initial franchise fee of $300,000, Submarine will provide initial services to the franchisee to include assistance in design and

> Assume the same facts as in E 5–33, but that Richardson Systems reports under IFRS. How would your answers change? (Assume for requirement 2 that separate shipment is part of the normal course of Richardson’s operations, and successful customer installat

> Richardson Systems sells integrated bottling manufacturing systems that involve a conveyer, a labeler, a filler, and a capper. All of this equipment is sold separately by other vendors, and the fair values of the separate equipment are as follows: Convey

> Easywrite Software Company shipped software to a customer on July 1, 2018. The arrangement with the customer also requires the company to provide technical support over the next 12 months and to ship an expected software upgrade on January 1, 2019. The t

> Assume the same information as in E 5–18. In E 5–18 On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $220 million. The expect

> Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Required: Determine the specific citation for accounting for each of the following items: Circumstances indicating when the installment method or cost recovery method

> On April 1, 2018, the Apex Corporation sold a parcel of underdeveloped land to the Applegate Construction Company for $2,400,000. The book value of the land on Apex’s books was $480,000. Terms of the sale required a down payment of $120,000 and 19 annual

> Sanchez Development Company uses the installment sales method to account for some of its installment sales. On October 1, 2018, Sanchez sold a parcel of land to the Kreuze Corporation for $4 million. This amount was not considered significant relative to

> Wolf Computer Company began operations in 2018. The company allows customers to pay in installments for many of its products. Installment sales for 2018 were $1,000,000. If revenue is recognized at the point of delivery, $600,000 in gross profit would be

> Cutler Education Corporation developed a software product to help children under age 12 learn mathematics. The software contains two separate parts: Basic Level (Level I) and Intermediate Level (Level II). Parents purchase each level separately and are e

> In May 2001, the Securities and Exchange Commission sued the former top executives at Sunbeam, charging the group with financial reporting fraud that allegedly cost investors billions in losses. Sunbeam Corporation is a recognized designer, manufacturer,

> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available in Connect. This material is also available under the Investor Relations li

> Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2015, are provided Connect. This mater

> Companies often voluntarily provide non-GAAP earnings when they announce annual or quarterly earnings. Required: 1. What is meant by the term non-GAAP earnings in this context? 2. How do non-GAAP earnings relate to the concept of earnings quality?

> Companies often are under pressure to meet or beat Wall Street earnings projections in order to increase stock prices and also to increase the value of stock options. Some resort to earnings management practices to artificially create desired results. R

> The appearance of restructuring costs in corporate income statements increased significantly in the 1980s and 1990s and continues to be relevant today. Required: 1. What types of costs are included in restructuring costs? 2. When are restructuring costs

> The financial community in the United States has become increasingly concerned with the quality of reported company earnings. Required: 1. Define the term earnings quality. 2. Explain the distinction between permanent and temporary earnings as it relate

> You are a new staff accountant with a large regional CPA firm, participating in your first audit. You recall from your auditing class that CPAs often use ratios to test the reasonableness of accounting numbers provided by the client. Since ratios reflect

> What is meant by a change in accounting principle? Describe the possible accounting treatments for a mandated change in accounting principle.

> You are a part-time financial advisor. A client is considering an investment in common stock of a waste recycling firm. One motivation is a rumor the client heard that the company made huge investments in a new fuel creation process. Unable to confirm th

> Ralph Lauren Corporation is a global leader in the design, marketing, and distribution of premium lifestyle products, including men’s, women’s and children’s apparel. Below are selected financial stat

> Refer to the income statement of Sherwin Williams Company in Illustration 4–2 of this chapter. In Illustration 4–2 Statement of Consolidated Income ($ in thousands, except per share data) __________________________Year ended December 31, 2015 Net sales

> Rice Corporation is negotiating a loan for expansion purposes and the bank requires financial statements. Before closing the accounting records for the year ended December 31, 2018, Rice’s controller prepared the following financial sta

> Companies often voluntarily provide non-GAAP earnings when they announce annual or quarterly earnings. These numbers are controversial as they represent management’s view of permanent earnings. The Sarbanes-Oxley Act (SOX), issued in 2002, requires that

> It has been suggested that not all accounting choices are made by management in the best interest of fair and consistent financial reporting. Required: What motivations can you think of for management’s choice of accounting methods?

> Norse Manufacturing Inc. prepares an annual single, continuous statement of income and comprehensive income. The following situations occurred during the company’s 2018 fiscal year: 1. Restructuring costs were incurred due to the closing of a factory. 2.

> GlaxoSmithKline Plc. (GSK) is a global pharmaceutical and consumer health-related products company located in the United Kingdom. The company prepares its financial statements in accordance with International Financial Reporting Standards. Below is a por

> The following events occurred during 2018 for various audit clients of your firm. Consider each event to be independent and the effect of each event to be material. 1. A manufacturing company recognized a loss on the sale of investments. 2. An automobile

> The accrual of restructuring costs creates obligations (liabilities) referred to as exit or disposal cost obligations. Required: 1. Obtain the relevant authoritative literature on exit or disposal cost obligations using the FASB Accounting Standards Cod

> How are discontinued operations reported in the income statement?

> Duke Company’s records show the following account balances at December 31, 2018: Sales ……………………………………………………………………. $ 15,000,000 Cost of goods sold ………………………………………………………9,000,000 General and administrative expenses ………………………….. 1,000,000 Selling expenses

> The following income statement items appeared on the adjusted trial balance of Schembri Manufacturing Corporation for the year ended December 31, 2018 ($ in thousands): sales revenue, $15,300; cost of goods sold, $6,200; selling expenses, $1,300; general

> Rembrandt Paint Company had the following income statement items for the year ended December 31, 2018 ($ in thousands): Net sales ……………………………………………………………………. $ 18,000 Interest income ………………………………………………………….……… 200 Interest expense ……………………………………………………………

> Required: Refer to the information presented in P 4–4. Prepare a revised income statement for 2018 reflecting the additional facts. Use a multiple-step format. Assume that an income tax rate of 40% applies to all income statement items, and that 20 milli

> The preliminary 2018 income statement of Alexian Systems, Inc., is presented below: ALEXIAN SYSTEMS, INC. Income Statement For the Year Ended December 31, 2018 ($ in millions, except earnings per share) Revenues and gains: Net sales ………………………………………………………

> For the year ending December 31, 2018, Micron Corporation had income from continuing operations before taxes of $1,200,000 before considering the following transactions and events. All of the items described below are before taxes and the amounts should

> The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2018 and 2017: On October 15, 2018, Jackson entered into a tentative agreement to sell the assets of one of its divisions. The d

> Selected information about income statement accounts for the Reed Company is presented below (the company’s fiscal year ends on December 31). On July 1, 2018, the company adopted a plan to discontinue a division that qualifies as a co

> Branson Electronics Company is a small, publicly traded company preparing its first quarter interim report to be mailed to shareholders. The following information for the quarter has been compiled: Fixed operating expenses include payments of $50,000 t

> Presented below are condensed financial statements adapted from those of two actual companies competing as the primary players in a specialty area of the food manufacturing and distribution industry ($ in millions, except per share amounts). Required:

> Define intraperiod tax allocation. Why is the process necessary?

> Cadux Candy Company’s income statement for the year ended December 31, 2018, reported interest expense of $2 million and income tax expense of $12 million. Current assets listed in its balance sheet include cash, accounts receivable, and inventories. Pro

> Presented below are condensed financial statements adapted from those of two actual companies competing in the pharmaceutical industry—Johnson and Johnson (J&J) and Pfizer, Inc. ($ in millions, except per share amounts). Required:

> Financial statements for Askew Industries for 2018 are shown below (in thousands): 2018 Income Statement Sales ………………â€&brv

> Presented below are the 2018 income statement and comparative balance sheets for Santana Industries. Additional information for the 2018 fiscal year ($ in thousands): 1. Cash dividends of $1,000 were declared and paid. 2. Equipment costing $4,000 was p

> The chief accountant for Grandview Corporation provides you with the company’s 2018 statement of cash flows and income statement. The accountant has asked for your help with some missing figures in the company’s compar

> The Diversified Portfolio Corporation provides investment advice to customers. A condensed income statement for the year ended December 31, 2018, appears below: Service revenue ………â€&

> On September 17, 2018, Ziltech, Inc., entered into an agreement to sell one of its divisions that qualifies as a component of the entity according to generally accepted accounting principles. By December 31, 2018, the company’s fiscal year-end, the divis

> Kandon Enterprises, Inc., has two operating divisions; one manufactures machinery and the other breeds and sells horses. Both divisions are considered separate components as defined by generally accepted accounting principles. The horse division has been

> Esquire Comic Book Company had income before tax of $1,000,000 in 2018 before considering the following material items: 1. Esquire sold one of its operating divisions, which qualified as a separate component according to generally accepted accounting pri

> Chance Company had two operating divisions, one manufacturing farm equipment and the other office supplies. Both divisions are considered separate components as defined by generally accepted accounting principles. The farm equipment component had been un

> On December 31, 2018, the end of the fiscal year, Revolutionary Industries completed the sale of its robotics business for $9 million. The business segment qualifies as a component of the entity according to GAAP. The book value of the assets of the segm

> The following incorrect income statement was prepared by the accountant of the Axel Corporation: Required: Prepare a multiple-step income statement for 2018 applying generally accepted accounting principles. The income tax rate is 40%. AXEL CORPORA

> The trial balance for Lindor Corporation, a manufacturing company, for the year ended December 31, 2018, included the following income accounts: The trial balance does not include the accrual for income taxes. Lindor’s income tax rate

> The following is a partial trial balance for General Lighting Corporation as of December 31, 2018: 300,000 shares of common stock were outstanding throughout 2018. Income tax expense has not yet been recorded. The income tax rate is 40%. Required: 1.

> The following is a partial trial balance for the Green Star Corporation as of December 31, 2018: 100,000 shares of common stock were outstanding throughout 2018. Required: 1. Prepare a single-step income statement for 2018, including EPS disclosures.

> Pandora Corporation operates several factories in the Midwest that manufacture consumer electronics. The December 31, 2018, year-end trial balance contained the following income statement items: Required: Calculate the company’s opera

> The 2018 income statement of Anderson Medical Supply Company reported net sales of $8 million, cost of goods sold of $4.8 million, and net income of $800,000. The following table shows the company’s comparative balance sheets for 2018 a

> The following is a portion of the condensed income statement for Rowan, Inc., a manufacturer of plastic containers: Required: 1. Determine Rowan’s inventory turnover. 2. What information does this ratio provide? Net sales $2,460,0

> Listed below are several terms and phrases associated with income statement presentation and the statement of cash flows. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it. List A List B 1