ACT 5001-Worksheet 6 Module 5 Problem 1 Party Time Company rents and sells vending machines, DJ equipment, and party supplies such as bounce houses, rock walls and decorations. Party Time offers a 30-day, money-back return on all non-holiday merchandise that it sells. Party Time also offers a two-vear warranty on all of its vending machines at no additional cost. Party Time had the following transactions throughout the year. Assume Party Time uses accrual accounting: 1. January 8-sold $3,300 of DJ equipment to Grover Company who paid Party Time $1,200 on the date of sale. Grover had 30 days to pay the balance of the bill. 2. January 26-Billed Simpson Company $5,800 for two vending machines. Simpson Company asked that Party Time hold the machines for fifteen days until they (Simpson) could finish construction updates on their building. 3. February 4-received the balance from Grover Company for the DJ equipment sold on January 8 4. February 9-delivered the vending machines to the customer in transaction #2. 5. February 26- received a $300 deposit for a bounce house, rock wall and decorations for a party that was to be held in one week. The total contract price for the party'rental is $900. 6. March 5-delivered the bounce house and rock wall to the customer in transaction # 5 . The customer paid the balance of the bill at the time of delivery 7. May 8-Sold $720 of goods that were on consignment from BeatBoxx DJ supplies. Party Time charges a 15 % commission on consignment sales. 8. June 15-Sold $225 of non-holiday decorations and lights on past experience, Party Time expects that 1 % of the goods will be returned. 9. July 1-Sold a vending machine for $6,800 on acco the bill. Assume that $2,400 of the $6,800 total cost is the standalone value of the two- vear maintenance contract. (Hint: Do we recognize the maintenance contract revenue separately? If so, how much revenue do we recognize and when do we report it?) 10. October 1-To stimulate sales, Party Time began selling gift cards that could be redeemed for future products the date of sale, after which time, they were no longer redeemable. Party Time had the following gift card sales and redemptions from October 1 through December 31 (For the sake of simplicity, assume all redemptions occurred on the last day of each month). to a customer for cash, Based nt. The customer has 30 days to pay or services. The gift cards were good for one year from a. October 1- Sold $5,000, redeemed $1,000 b. November 1-Sold $11,000, redeemed $4,600. c. December 1-Sold $23,000, redeemed $16,200. Required: For each situation, determine if revenue should be recoenized on each date and, if so, how much should be recognized. Please write out each transaction date and the amount that should be recognized on that date. If no revenue is recognized on a transaction date, explain why. Be sure to show all calculations. Problem 2 Jamison Construction Company won a contract to build a warehouse for Fresno Company. The contract price was $8,600,000. Jamison estimated that the warehouse would take three years and cost $7,200,000 to complete. Actual and expected costs for the next three years were: Year 1- $3,240,000, Year 2 - $2,520,000 and year 3-$1,440,000 Required: 1. Determine how much revenue and gross profit Jamison should recognize each year using the cost-to-cost method. 2. What is the major drawback of the cost-to-cost method? 3. How do we classify advance payments and billings in excess of cost when using the cost- to-cost method? 4. How do we classify costs incurred in excess of billings when using the cost-to-cost method? Problem 3 Bryant Company had the following account balances on December 31st, 2018, before any adjustments. Bryant had $588,500 of sales throughout the year, of which $385,000 were credit sales Accounts Receivable $77,250 Aliowance for uncollectible accounts 1,750 Required: 1. On December 31st, Bryant estimated the Allowance for Doubtful Accounts to be 1% of credit sales. What amount would Bryant report as Bad Debt Expense on the Income Statement? What is the ending balance in the Allowance for uncollectible accounts after the adjustment? What amount would Brvant report as Net Receivables on the Balance Sheet? Show your work for ALL parts. 2. Compute Bryant's Receivables Turnover Ratio and Days Sales Outstanding. What do these ratios tell us about Bryant's management of their recelvables? (Use the end-of- net receivables and credit sales for your ratios). 3. On December 31, 2018 Bryant does an aging of receivables and determines that $500 of the receivables will not be collected. How would they record this write-off? (You can either explain which acccounts will increase/decrease, you can prepare a journal entry or map it on a Financial Statements Effects Template.) 4. What will Bryant report as net receivables AFTER the write-off? 5. Bryant sells goods with the discount terms 2/15, n30. What does this mean? What is the primary reason that sellers do this? Bonus- 20 points total Ignoring parts 1-5 above assume, instead, that Bryant does an aging schedule to determine the amount of uncollectible accounts. They determine the following: % uncollectible Amount Days Outstanding 1% $36,800 Current 4% $22,400 1-60 days past due 13% $14,200 61-130 days past due Over 180 days past due $3,850 50% 1. Complete the aging schedule above to determine the amount of receivables that are expected to be uncollectible for the period. 2. How much wil Bryant report as Bad Debt Expense on the income Statement? (Hint: do a T-account of your Allowance for Uncollectible Accounts to determine the amount needed to achieve the ending balance that you calculated in your aging schedule. Be sure to show your work. You can refer to M5-18 from the review problems for assistance. 3. What amount would Bryant report as Net Receivables on the Balance Sheet? ACT 5001-Worksheet 6 Module 5 Problem 1 Party Time Company rents and sells vending machines, DJ equipment, and party supplies such as bounce houses, rock walls and decorations. Party Time offers a 30-day, money-back return on all non-holiday merchandise that it sells. Party Time also offers a two-vear warranty on all of its vending machines at no additional cost. Party Time had the following transactions throughout the year. Assume Party Time uses accrual accounting: 1. January 8-sold $3,300 of DJ equipment to Grover Company who paid Party Time $1,200 on the date of sale. Grover had 30 days to pay the balance of the bill. 2. January 26-Billed Simpson Company $5,800 for two vending machines. Simpson Company asked that Party Time hold the machines for fifteen days until they (Simpson) could finish construction updates on their building. 3. February 4-received the balance from Grover Company for the DJ equipment sold on January 8 4. February 9-delivered the vending machines to the customer in transaction #2. 5. February 26- received a $300 deposit for a bounce house, rock wall and decorations for a party that was to be held in one week. The total contract price for the party'rental is $900. 6. March 5-delivered the bounce house and rock wall to the customer in transaction # 5 . The customer paid the balance of the bill at the time of delivery 7. May 8-Sold $720 of goods that were on consignment from BeatBoxx DJ supplies. Party Time charges a 15 % commission on consignment sales. 8. June 15-Sold $225 of non-holiday decorations and lights on past experience, Party Time expects that 1 % of the goods will be returned. 9. July 1-Sold a vending machine for $6,800 on acco the bill. Assume that $2,400 of the $6,800 total cost is the standalone value of the two- vear maintenance contract. (Hint: Do we recognize the maintenance contract revenue separately? If so, how much revenue do we recognize and when do we report it?) 10. October 1-To stimulate sales, Party Time began selling gift cards that could be redeemed for future products the date of sale, after which time, they were no longer redeemable. Party Time had the following gift card sales and redemptions from October 1 through December 31 (For the sake of simplicity, assume all redemptions occurred on the last day of each month). to a customer for cash, Based nt. The customer has 30 days to pay or services. The gift cards were good for one year from a. October 1- Sold $5,000, redeemed $1,000 b. November 1-Sold $11,000, redeemed $4,600. c. December 1-Sold $23,000, redeemed $16,200. Required: For each situation, determine if revenue should be recoenized on each date and, if so, how much should be recognized. Please write out each transaction date and the amount that should be recognized on that date. If no revenue is recognized on a transaction date, explain why. Be sure to show all calculations. Problem 2 Jamison Construction Company won a contract to build a warehouse for Fresno Company. The contract price was $8,600,000. Jamison estimated that the warehouse would take three years and cost $7,200,000 to complete. Actual and expected costs for the next three years were: Year 1- $3,240,000, Year 2 - $2,520,000 and year 3-$1,440,000 Required: 1. Determine how much revenue and gross profit Jamison should recognize each year using the cost-to-cost method. 2. What is the major drawback of the cost-to-cost method? 3. How do we classify advance payments and billings in excess of cost when using the cost- to-cost method? 4. How do we classify costs incurred in excess of billings when using the cost-to-cost method? Problem 3 Bryant Company had the following account balances on December 31st, 2018, before any adjustments. Bryant had $588,500 of sales throughout the year, of which $385,000 were credit sales Accounts Receivable $77,250 Aliowance for uncollectible accounts 1,750 Required: 1. On December 31st, Bryant estimated the Allowance for Doubtful Accounts to be 1% of credit sales. What amount would Bryant report as Bad Debt Expense on the Income Statement? What is the ending balance in the Allowance for uncollectible accounts after the adjustment? What amount would Brvant report as Net Receivables on the Balance Sheet? Show your work for ALL parts. 2. Compute Bryant's Receivables Turnover Ratio and Days Sales Outstanding. What do these ratios tell us about Bryant's management of their recelvables? (Use the end-of- net receivables and credit sales for your ratios). 3. On December 31, 2018 Bryant does an aging of receivables and determines that $500 of the receivables will not be collected. How would they record this write-off? (You can either explain which acccounts will increase/decrease, you can prepare a journal entry or map it on a Financial Statements Effects Template.) 4. What will Bryant report as net receivables AFTER the write-off? 5. Bryant sells goods with the discount terms 2/15, n30. What does this mean? What is the primary reason that sellers do this? Bonus- 20 points total Ignoring parts 1-5 above assume, instead, that Bryant does an aging schedule to determine the amount of uncollectible accounts. They determine the following: % uncollectible Amount Days Outstanding 1% $36,800 Current 4% $22,400 1-60 days past due 13% $14,200 61-130 days past due Over 180 days past due $3,850 50% 1. Complete the aging schedule above to determine the amount of receivables that are expected to be uncollectible for the period. 2. How much wil Bryant report as Bad Debt Expense on the income Statement? (Hint: do a T-account of your Allowance for Uncollectible Accounts to determine the amount needed to achieve the ending balance that you calculated in your aging schedule. Be sure to show your work. You can refer to M5-18 from the review problems for assistance. 3. What amount would Bryant report as Net Receivables on the Balance Sheet