11 / 14 100% + QUESTION 5 19 MARKS KML Company Limited is adopting IFRS 15 early and has asked for your assistance in accounting for the following transactions for the 2016 year. You can assume that Transaction 1, 2 and 3 are unrelated to each other. Transaction 1 KML Company has a major contract scheduled to be completed on June 30, 2017. The contract value is $3,000,000, with $500,000 of machinery to be delivered to Hawk Ltd. each month (for example, the first $500,000 of machinery must be delivered to Hawk by January 31, 2017). If all six monthly deadlines are met, a bonus of $100,000 will be paid to KLM on August 1st. KML has a history of meeting its "on-time" completion incentives, and has earned the bonus 80% of the time for past major contracts. Hawk is using the machinery to complete an assembly line for its new factory. So, in addition to on-time delivery, the project requires an inspection to be completed by Hawk once its assembly line becomes operational in late August Based on the results of the inspection of the completed assembly line, the following penalties will be assessed by Hawk (to be paid by KML): O deficiencies 69% probability $0 Penalty 1 deficiency 15% probability $ 30,000 Penalty 2 deficiencies 10% probability $ 70,000 Penalty 3 deficiencies 5% probability $ 90,000 Penalty more than 3 deficiencies 1% probability $200,000 Penalty Required 6 marks It is now March 1, 2017 and the first two months of deliveries have been made on time by KML, KML has not recorded any revenue for the contract yet, and has come to you for advice. Describe what method you would recommend to determine the transaction price contract's three main items that is, the machinerulincentives/ nenalties) Vour rernmmendation should inchide a brief Midterm w1.pdf BU387 fall 2016.pdf doc (1).pdf MacBook Air DD da F7 DII F8 9 E 3 NW Chi Lec C H chu chi Wil Wi 5X Mint C QU C Be Bo Textbook 5 EC295 EC281 BU225 Assignment 1 pers. Midterm 2 BU283 EC 270 Final Test 12 / 14 100% + Required 6 marks It is now March 1, 2017 and the first two months of deliveries have been made on time by KML, KML has not recorded any revenue for the contract yet, and has come to you for advice. Describe what method you would recommend to determine the transaction price contract's three main items that is, the machinery/incentivesi penalties). Your recommendation should include a brief explanation for each of these three items, including the method to be used the amounts to be recognized, and the timing of revenue recognition. (You are not required to prepare journal entries for this part). Transaction 2 KML has also sold a machine to XYZ Inc. on March 1, 2016 for $600,000. Due to the highly competitive nature of the industry, KML has allowed XYZ to delay its payment of the amount due and will not charge XYZ any interest. XYZ must pay $600,000 on March 1, 2018. XYZ is happy with the arrangement, because at the time of the sale, the prevailing annual interest rate for similar transactions was 5%. The machine was quite profitable for KML, as it only cost them $400,000 aha.in inte Midterm pdf BU387 fall 2016 af doc ft).pdf MacBook Air book EC295 EC281 BU225 Assignment 1 pers. Midterm 2 B0283. EC270 Final Test 12/14 100% + 6 Transaction 2 KML has also sold a machine to XYZ Inc. on March 1, 2016 for $600,000. Due to the highly competitive nature of the industry, KML has allowed XYZ to delay its payment of the amount due and will not charge XYZ any interest. XYZ must pay $600,000 on March 1, 2018. XYZ is happy with the arrangement, because at the time of the sale, the prevailing annual interest rate for similar transactions was 5%. The machine was quite profitable for KML, as it only cost them $400,000 when they purchased it in late 2015. Required 7 marks Prepare all the journal entry(s) related to the sale of the machinery that should be recorded by KML for the year ending December 31, 2016 (including the cost of sales component sale) Transaction 3 An enterprise software system has been sold to Red Corporation for $6 million. The price includes installation. The installation does not change the features of the software and does not involve proprietary applications for the system to perform in accordance with specifications. The installation included in the purchase price could be completed by the purchaser's own employees. The price of the installatio if sold separately would be $200,000. The software was delivered August 1, 2016 and the installation was completed by September 30, 2016. In the purchase price, KML provides a 1-year warranty whereby KML asserts the software will function according to specifications. KML has estimated the cost of the repairs under the 1-year warranty will be $180,000 based on work done on similar software systems. KML also offers a premium warranty that extends coverage for an additional two years at a cost of $500,000. Red elects to purchase the extended warranty Required 6 marks Midterm w1.pdf BU387 fall 2016.pdf doc (1).pdf MacBook Air CQ Download 2011 pdf 50200 TCI 100 + R w the software and does not involve proprietary plans for the system perform in accordance with specifications. The nation included in the purchase price could be completed by the purchaser's own employees. The price of the installation sold separately would be $200.000 The sore was delivered August 1. 2016 and then was completed by September 30 2016 in the purchase price KML provides a la web KML asserts the software will function according to specificacions Khased the cost of the repairs under the year warranty will be $10.000 based on work done on Similar software systems KML offers a prends coverage for an additional two years at a cost of $500,000 Redes to purchase the coded warranty Required marts Idently the performance obligations and care out of evening to each performance (t) Prepare themes the ponad ending September 30, 2016 MacBook 10 del os 8 . . 12 SE - + . 3 s 4 OR 5 6 7 . 00 8 9 0 den E R Y U I OP D F G H J J KL C V V B N N M V - ? T 11 / 14 100% + QUESTION 5 19 MARKS KML Company Limited is adopting IFRS 15 early and has asked for your assistance in accounting for the following transactions for the 2016 year. You can assume that Transaction 1, 2 and 3 are unrelated to each other. Transaction 1 KML Company has a major contract scheduled to be completed on June 30, 2017. The contract value is $3,000,000, with $500,000 of machinery to be delivered to Hawk Ltd. each month (for example, the first $500,000 of machinery must be delivered to Hawk by January 31, 2017). If all six monthly deadlines are met, a bonus of $100,000 will be paid to KLM on August 1st. KML has a history of meeting its "on-time" completion incentives, and has earned the bonus 80% of the time for past major contracts. Hawk is using the machinery to complete an assembly line for its new factory. So, in addition to on-time delivery, the project requires an inspection to be completed by Hawk once its assembly line becomes operational in late August Based on the results of the inspection of the completed assembly line, the following penalties will be assessed by Hawk (to be paid by KML): O deficiencies 69% probability $0 Penalty 1 deficiency 15% probability $ 30,000 Penalty 2 deficiencies 10% probability $ 70,000 Penalty 3 deficiencies 5% probability $ 90,000 Penalty more than 3 deficiencies 1% probability $200,000 Penalty Required 6 marks It is now March 1, 2017 and the first two months of deliveries have been made on time by KML, KML has not recorded any revenue for the contract yet, and has come to you for advice. Describe what method you would recommend to determine the transaction price contract's three main items that is, the machinerulincentives/ nenalties) Vour rernmmendation should inchide a brief Midterm w1.pdf BU387 fall 2016.pdf doc (1).pdf MacBook Air DD da F7 DII F8 9 E 3 NW Chi Lec C H chu chi Wil Wi 5X Mint C QU C Be Bo Textbook 5 EC295 EC281 BU225 Assignment 1 pers. Midterm 2 BU283 EC 270 Final Test 12 / 14 100% + Required 6 marks It is now March 1, 2017 and the first two months of deliveries have been made on time by KML, KML has not recorded any revenue for the contract yet, and has come to you for advice. Describe what method you would recommend to determine the transaction price contract's three main items that is, the machinery/incentivesi penalties). Your recommendation should include a brief explanation for each of these three items, including the method to be used the amounts to be recognized, and the timing of revenue recognition. (You are not required to prepare journal entries for this part). Transaction 2 KML has also sold a machine to XYZ Inc. on March 1, 2016 for $600,000. Due to the highly competitive nature of the industry, KML has allowed XYZ to delay its payment of the amount due and will not charge XYZ any interest. XYZ must pay $600,000 on March 1, 2018. XYZ is happy with the arrangement, because at the time of the sale, the prevailing annual interest rate for similar transactions was 5%. The machine was quite profitable for KML, as it only cost them $400,000 aha.in inte Midterm pdf BU387 fall 2016 af doc ft).pdf MacBook Air book EC295 EC281 BU225 Assignment 1 pers. Midterm 2 B0283. EC270 Final Test 12/14 100% + 6 Transaction 2 KML has also sold a machine to XYZ Inc. on March 1, 2016 for $600,000. Due to the highly competitive nature of the industry, KML has allowed XYZ to delay its payment of the amount due and will not charge XYZ any interest. XYZ must pay $600,000 on March 1, 2018. XYZ is happy with the arrangement, because at the time of the sale, the prevailing annual interest rate for similar transactions was 5%. The machine was quite profitable for KML, as it only cost them $400,000 when they purchased it in late 2015. Required 7 marks Prepare all the journal entry(s) related to the sale of the machinery that should be recorded by KML for the year ending December 31, 2016 (including the cost of sales component sale) Transaction 3 An enterprise software system has been sold to Red Corporation for $6 million. The price includes installation. The installation does not change the features of the software and does not involve proprietary applications for the system to perform in accordance with specifications. The installation included in the purchase price could be completed by the purchaser's own employees. The price of the installatio if sold separately would be $200,000. The software was delivered August 1, 2016 and the installation was completed by September 30, 2016. In the purchase price, KML provides a 1-year warranty whereby KML asserts the software will function according to specifications. KML has estimated the cost of the repairs under the 1-year warranty will be $180,000 based on work done on similar software systems. KML also offers a premium warranty that extends coverage for an additional two years at a cost of $500,000. Red elects to purchase the extended warranty Required 6 marks Midterm w1.pdf BU387 fall 2016.pdf doc (1).pdf MacBook Air CQ Download 2011 pdf 50200 TCI 100 + R w the software and does not involve proprietary plans for the system perform in accordance with specifications. The nation included in the purchase price could be completed by the purchaser's own employees. The price of the installation sold separately would be $200.000 The sore was delivered August 1. 2016 and then was completed by September 30 2016 in the purchase price KML provides a la web KML asserts the software will function according to specificacions Khased the cost of the repairs under the year warranty will be $10.000 based on work done on Similar software systems KML offers a prends coverage for an additional two years at a cost of $500,000 Redes to purchase the coded warranty Required marts Idently the performance obligations and care out of evening to each performance (t) Prepare themes the ponad ending September 30, 2016 MacBook 10 del os 8 . . 12 SE - + . 3 s 4 OR 5 6 7 . 00 8 9 0 den E R Y U I OP D F G H J J KL C V V B N N M V - ? T