Homework Week 1 Chapter 18

Problem 1:
You are the Senior Accountant for the Patty Corporation, which has several
divisions. They each keep their own accounting books and have chosen the
appropriate method of revenue recognition based on their operations.

Pat's Electronics Division

Pat's Electronics Division sells computers through agents in various cities.
Agents send orders and down payments to our company. The division then
ships the goods F.O.B. shipping point directly to the customers. Revenue is
recognized at the point of sale.
Additional Financial Data
Orders for fiscal year 2012
Down payments collected in 2012
Billed and shipped in 2012
Freight billed in 2012
Commissions paid to agents (after ship to
customer)
Warranty returns as % of sales

$
3,000,000
$
300,000
$
2,400,000
$
70,000
10%
1%

Pickle Construction Division

The Pickle Construction Division was working on one project for the 2012
fiscal year. They use the percentage of completion revenue recognition
method.
Contract for new administration building
Total contract amount
Contract grant date
Construction began
Estimated cost to complete at beginning of
contract
Estimated time to complete project
As of Dec 31, 2012

$
60,000,000
August 14, 2012
September 1, 2012
$
52,000,000
2 years

Homework Week 1 Chapter 18

Construction costs incurred to date
Billings to date
Expected costs to complete

$
14,140,000
$
19,500,000
$
36,360,000

Peace Book Distribution

Division
Peace Book Distribution Division sells to national bookstores. Our division
allows for up to 25% of sales in returns. For the past 4 years, returns have
averaged 20%. We record revenue based on revenue recognition when the
right of return exists.
Total sales for 2012
Sales still available for return for six months
Actual returns on sales not returnable
2011 sales collected in 2012
2011 sales returned in 2012

$
9,000,000
$
2,000,000
21%
$
2,500,000
19%

Required:
(a) We have studied several methods of revenue recognition. Define and
describe each of the following methods of revenue recognition and indicate
whether each is in accordance with generally accepted accounting
principles.
- Point of sale
- Completion-of-production
- Percentage-of-completion
- Installment-sales
(b) Calculate the revenue to be recognized in fiscal year 2012 for each
division of Patty Corporation in accordance with generally accepted
accounting principles. Show all calculations for full credit.

Problem 2:

Homework Week 1 Chapter 18

Curiosity Company
Curiosity Company provided the following financial information for its
installment-sales for the current year.
Financial Data
Installment sales for current year
Cost of goods sold on installment basis
Payments by customers
Repossessed merchandise - unpaid
balances
Repossessed merchandise - estimated
value

$
$
$

800,000
600,000
320,000

52,000

26,800

Require
d:
a) Prepare journal entries for the end of the year based on the
information above.
b) Prepare the entry to record the gross profit realized in the
current year.