1 Name: Problem 3 15 marks Situations 1 through 3 are unrelated. Situation 1: Assuming the company follows IFRS, illustrate the five steps in the revenue recognition process for Ambrosia Corporation: (5 marks) On December 31, 2019, Ambrosia Company sells manufacturing equipment to Lemon Inc. for $30,000 cash. Ambrosia's selling price is more that the competition because Ambrosia includes a five-year warranty plan with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2019. Ambrosia estimates the stand-alone prices to be $26,000 for the equipment and $4,000 for the warranty. Ambrosia's cost for the equipment was $17,000. 2 w 1. Identify the contract with customers. 2. Identify the separate performance obligations in the contract. 3. Determine the (total) transaction price 4. Allocate the transaction price to the separate performance obligations 5. Recognize revenue when each performance obligation is satisfied. Prepare the journal entry to record the sale on December 31, 2019. Assume the company uses a perpetual inventory system. Situation 2: Envy Inc. an online shoe retailer, has a return policy that allows customers to return merchandise in unused condition for a full refund within 60 days of purchase. Envy knows from past experience that about 12% of sales are consistently returned. (2 marks) Describe how/when Envy should recognize revenue and provide a rational (explanation) for your answer. Situation 3: Kiku Ltd. was contracted to build a new high school for $12,000,000. Construction began in 2019 and is expected to be completed in 2021. Data for 2019 and 2020 are: 2019 2020 Costs incurred for the year. $ 3,080,000 $6,208,000 Cost incurred to date. 3,080,000 9,288,000 Estimated costs to complete. 6,920,000 1,512,000 Estimated total costs to complete 10,000,000 10,800,000 Instructions Using the percentage-of-completion method and the cost-to-cost basis, a) How much revenue and gross profit should be reported for 2019? Show your calculation. b) How much revenue and gross profit should be reported for 2020? Show your calculation c) Indicate/describe what method should be used to record the project if Kiku cannot properly estimate progress towards completion and the costs to complete the project each year. d) in your own words describe what is a "Contract Asset/Liability and give an example of both a contract asset and a contract liability. Name: Problem 4 11 marks Select the best answer and indicate your choice by putting in the space provided. Data for questions 1 and 2: On April 1, Fuji Corp.consigned 20 handcrafted picnic tables to McIntosh Co. Fuji's cost was $120 per table McIntosh sold the tables for $1,000 each. Total freight costs were $400, which were paid by McIntosh. On August 1, Fuji received a cheque for $3,610 from McIntosh which included the following information: Number of units sold: 18 Expenses deducted: Freight to McIntosh $400 Commission (10% of sales price) $1,800 1. Fuji's revenue for the sale of these tables is a) $13,680 c) $16,200 b) $18,000 d) $14,040 2. The remaining inventory of two tables will be reported on whose statement of financial position and at what amount? a) McIntosh's statement of financial position, $280 b) Fuji's statement of financial position, $240 c) Fuji's statement of financial position, $280 d) McIntosh's statement of financial position $240 Data for questions 3 and 4: The following information was available from the inventory records of HoneyCrisp Company for January Units Unit Cost Total Cost Balance at January 1. 3,000 $4.45 $13,350 Purchases: January 6. 2.000 5.15 10,300 January 26, 2,700 5.30 14,310 Sales: January 7 (2.500) January 31 (4.200) Balance at January 31 1.000 3. Assuming that HoneyCrisp uses the periodic inventory system, what should the inventory be at January 31, using the weighted average inventory method, rounded to the nearest dollar? a) $5,161 c) $5,300 b) $4,930 d) $4,967 4. Assuming that HoneyCrisp uses the perpetual inventory system, what should the inventory be at January 31, using the moving average inventory method, rounded to the nearest dollar? a) $5,161 c) $5,300 b) $4.930 d) $4,967 5. Mutsu Industries Inc. is in the business of producing organic produce. The company uses IFRS. As an experiment, the company has decided to attempt raising organic lambs. On May 1, 2018, Mutsu purchased 20 lambs for cash at a total cost of $900. The company incurred feed and labour costs of $150 per month to look after the kids. Their (acceptable) accounting policy is to capitalize these costs. At December 31, year end, the lambs had grown to have a fair value of $3,000. How should the lambs be shown on Mutsu' statement of financial position, under what category and for what value? a) Agricultural produce $3,000 c) Biological assets $2.100 b) Inventory $2,100 d) Biological assets $3,000 1 Name: Problem 3 15 marks Situations 1 through 3 are unrelated. Situation 1: Assuming the company follows IFRS, illustrate the five steps in the revenue recognition process for Ambrosia Corporation: (5 marks) On December 31, 2019, Ambrosia Company sells manufacturing equipment to Lemon Inc. for $30,000 cash. Ambrosia's selling price is more that the competition because Ambrosia includes a five-year warranty plan with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2019. Ambrosia estimates the stand-alone prices to be $26,000 for the equipment and $4,000 for the warranty. Ambrosia's cost for the equipment was $17,000. 2 w 1. Identify the contract with customers. 2. Identify the separate performance obligations in the contract. 3. Determine the (total) transaction price 4. Allocate the transaction price to the separate performance obligations 5. Recognize revenue when each performance obligation is satisfied. Prepare the journal entry to record the sale on December 31, 2019. Assume the company uses a perpetual inventory system. Situation 2: Envy Inc. an online shoe retailer, has a return policy that allows customers to return merchandise in unused condition for a full refund within 60 days of purchase. Envy knows from past experience that about 12% of sales are consistently returned. (2 marks) Describe how/when Envy should recognize revenue and provide a rational (explanation) for your answer. Situation 3: Kiku Ltd. was contracted to build a new high school for $12,000,000. Construction began in 2019 and is expected to be completed in 2021. Data for 2019 and 2020 are: 2019 2020 Costs incurred for the year. $ 3,080,000 $6,208,000 Cost incurred to date. 3,080,000 9,288,000 Estimated costs to complete. 6,920,000 1,512,000 Estimated total costs to complete 10,000,000 10,800,000 Instructions Using the percentage-of-completion method and the cost-to-cost basis, a) How much revenue and gross profit should be reported for 2019? Show your calculation. b) How much revenue and gross profit should be reported for 2020? Show your calculation c) Indicate/describe what method should be used to record the project if Kiku cannot properly estimate progress towards completion and the costs to complete the project each year. d) in your own words describe what is a "Contract Asset/Liability and give an example of both a contract asset and a contract liability. Name: Problem 4 11 marks Select the best answer and indicate your choice by putting in the space provided. Data for questions 1 and 2: On April 1, Fuji Corp.consigned 20 handcrafted picnic tables to McIntosh Co. Fuji's cost was $120 per table McIntosh sold the tables for $1,000 each. Total freight costs were $400, which were paid by McIntosh. On August 1, Fuji received a cheque for $3,610 from McIntosh which included the following information: Number of units sold: 18 Expenses deducted: Freight to McIntosh $400 Commission (10% of sales price) $1,800 1. Fuji's revenue for the sale of these tables is a) $13,680 c) $16,200 b) $18,000 d) $14,040 2. The remaining inventory of two tables will be reported on whose statement of financial position and at what amount? a) McIntosh's statement of financial position, $280 b) Fuji's statement of financial position, $240 c) Fuji's statement of financial position, $280 d) McIntosh's statement of financial position $240 Data for questions 3 and 4: The following information was available from the inventory records of HoneyCrisp Company for January Units Unit Cost Total Cost Balance at January 1. 3,000 $4.45 $13,350 Purchases: January 6. 2.000 5.15 10,300 January 26, 2,700 5.30 14,310 Sales: January 7 (2.500) January 31 (4.200) Balance at January 31 1.000 3. Assuming that HoneyCrisp uses the periodic inventory system, what should the inventory be at January 31, using the weighted average inventory method, rounded to the nearest dollar? a) $5,161 c) $5,300 b) $4,930 d) $4,967 4. Assuming that HoneyCrisp uses the perpetual inventory system, what should the inventory be at January 31, using the moving average inventory method, rounded to the nearest dollar? a) $5,161 c) $5,300 b) $4.930 d) $4,967 5. Mutsu Industries Inc. is in the business of producing organic produce. The company uses IFRS. As an experiment, the company has decided to attempt raising organic lambs. On May 1, 2018, Mutsu purchased 20 lambs for cash at a total cost of $900. The company incurred feed and labour costs of $150 per month to look after the kids. Their (acceptable) accounting policy is to capitalize these costs. At December 31, year end, the lambs had grown to have a fair value of $3,000. How should the lambs be shown on Mutsu' statement of financial position, under what category and for what value? a) Agricultural produce $3,000 c) Biological assets $2.100 b) Inventory $2,100 d) Biological assets $3,000