1. On July 15, 2016, Ortiz & Co. signed a contract to provide EverFresh Bakery with an ingredient-weighing system for a price of $100,800. The system included finely tuned scales that fit into EverFreshs automated assembly line, Ortizs proprietary software modified to allow the weighing sytem to function in EverFreshs automated system, and a one-year contract to calibrate the equipment and software on an as-needed basis. (Ortiz competes with other vendors who offer ongoing calibration contracts for Ortizs systems.) If Ortiz was to provide these goods and services separately, it would charge $69,000 for the scales, $10,000 for the software, and $21,000 for the calibration contract. Ortiz delivered and installed the equipment and software on August 1, 2016, and the calibration service commenced on that date.

Assume that the scales, software and calibration service are all separate performance obligations. How much revenue will Ortiz recognize in 2016 for this contract?

$79,632

$100,800

$88,452

$0

2. On April 1^st, Bob the Builder entered into a contract of one-month duration to build a barn for Nolan. Bob is guaranteed to receive a base fee of $4,700 for his services in addition to a bonus depending on when the project is completed. Nolan created incentives for Bob to finish the barn as soon as he can without jeopardizing the structural integrity of the barn. Nolan offered to pay an additional 20% of the base fee if the project finished 2 weeks early and 10% if the project finished a week early. The probability of finishing 2 weeks early is 20% and the probability of finishing a week early is 60%.

$5,170

$4,700

$5,120

$4,465

3. Maas LLP developed software that helps farmers to plow their fields in a manner that prevents erosion and maximizes the effectiveness of irrigation. Sunny Dale paid a licensing fee of $15,000 for a copy of the software. Although Sunny Dale can use the software as long as it wants, Maas expects that Sunny Dale will use the software for approximately 5 years. Maas does not anticipate any further interaction with Sunny Dale following transfer of the license. How much revenue should Maas recognize in the first year of the contract?

$15,000

$3,000

$3,750

$0

4. Pita Pal sells fast-food franchises. Pita Pal receives $74,000 from a new franchisee for providing initial training, equipment, and furnishings that together have a stand-alone selling price of $74,000. Pita Pal also receives $35,700 per year for use of the Pita Pal name and for ongoing consulting services (starting on the date the franchise is purchased). Rachel became a Pita Pal franchisee on March 1, 2018, and on May 1, 2018 Rachel had completed training and was open for business. How much revenue in 2018 will Pita Pal recognize for its arrangement with Rachel?

$74,000

$0

$109,700

$103,750

5. On December 15, 2016, Rigsby Sales Co. sold a tract of land that cost $3,400,000 for $5,000,000. Rigsby appropriately uses the installment sales method of accounting for this transaction. Terms called for a down payment of $430,000 with the balance in two equal annual installments payable on December 15, 2017, and December 15, 2018. Ignore interest charges. Rigsby has a December 31 year-end. At December 31, 2017, Rigsby would report in its balance sheet:

Deferred gross profit of $731,200.

Realized gross profit of $430,000.

Cost of installment sales $1,553,800.

Realized gross profit of $731,200.

6. Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay one-third of the sales price of a jet ski when they initially purchase the ski, and then pay another one-third each year for the next two years. Because Lake has little information about the ability to collect these receivables, it uses the installment sales method for revenue recognition. In 2015, Lake began operations and sold jet skis with a total price of $1,020,000 that cost Lake $510,000. Lake collected $340,000 in 2015, $340,000 in 2016, and $340,000 in 2017 associated with those sales. In 2016, Lake sold jet skis with a total price of $1,380,000 that cost Lake $828,000. Lake collected $460,000 in 2016, $275,000 in 2017, and $275,000 in 2018 associated with those sales. In 2018, Lake also repossessed $370,000 of jet skis that were sold in 2016. Those jet skis had a fair value of $138,750 at the time they were repossessed. In 2015, Lake would recognize realized gross profit of:

$ 0.

$340,000.

$170,000.

$510,000.

7. Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay one-third of the sales price of a jet ski when they initially purchase the ski, and then pay another one-third each year for the next two years. Because Lake has little information about the ability to collect these receivables, it uses the cost recovery method to recognize revenue on these installment sales. In 2015, Lake began operations and sold jet skis with a total price of $1,080,000 that cost Lake $540,000. Lake collected $360,000 in 2015, $360,000 in 2016, and $360,000 in 2017 associated with those sales. In 2016, Lake sold jet skis with a total price of $1,980,000 that cost Lake $1,188,000. Lake collected $660,000 in 2016, $528,000 in 2017, and $528,000 in 2018 associated with those sales. In 2018, Lake also repossessed $264,000 of jet skis that were sold in 2016. Those jet skis had a fair value of $99,000 at the time they were repossessed. In 2017, Lake would recognize realized gross profit of:

$360,000.

$0.

$700,000.

$888,000.