I need Answers for Exercise 18-4B, 18-8B, 15-15B, 18-21 B and 18-26B from the attached document

Kieso, Intermediate Accounting, 2014 FASB Update, Chapter 18 EXERCISES: Set B 3 5 E18-1B (Sales with Discounts)Windsor Company sells goods to Gannon Inc. on account on January 1, 2014. The goods have a sales price of $490,000 (cost $400,000). The terms of the sale are net 30. If Gannon pays within 5 days, it receives a cash discount of $10,000. Past history indicates the cash discount will be taken. Instructions (a) Prepare the journal entries for Windsor for January 1, 2014. (b) Prepare the journal entries for Windsor for January 31, 2014, assuming Gannon does not make payment until January 31, 2014. 3 5 E18-2B (Transaction Price)Presented below are three revenue recognition situations. (a) Myler sells goods to LRF for $1,200,000, payment due at delivery. (b) Myler sells goods on account to Donley for $600,000, payment due in 30 days. (c) Myler sells goods to Renfro for $400,000, payment due in two installments: the first installment payable in 18 months and the second payment due 6 months later. The present value of the future payments is $370,000. Instructions Indicate the transaction price for each of these transactions and when revenue will be recognized. 3 E18-3B (Contract Modification)In September 2014, Fernetti Corp. commits to selling 200 of its iPhone-compatible docking stations to Remington Co. for $20,000 ($100 per product). The stations are delivered to Remington over the next 6 months. After 120 stations are delivered, the contract is modified and Fernetti promises to deliver an additional 60 products for an additional $5,700 ($95 per station). All sales are cash on delivery. Instructions (a) Prepare the journal entry for Fernetti for the sale of the first 120 stations. The cost of each station is $70. (b) Prepare the journal entry for the sale of 12 more stations after the contract modification, assuming that the price for the additional stations reflects the standalone selling price at the time of the contract modification. In addition, the additional stations are distinct from the original products as Fernetti regularly sells the products separately. (c) Prepare the journal entry for the sale of 12 more stations (as in (b)), assuming that the pricing for the additional products does not reflect the standalone selling price of the additional products and the prospective method is used. 3 E18-4B (Contract Modification)Dolan Financial Services performs bookkeeping and taxreporting services to startup companies in the Hiawatha area. On January 1, 2014, Dolan entered into a 3-year service contract with Lindsey Tech. Lindsey promises to pay $12,000 at the beginning of each year, which at contract inception is the standalone selling price for these services. At the end of the second year, the contract is modified and the fee for the third year of services is reduced to $10,000. In addition, Lindsey agrees to pay an additional $25,000 at the beginning of the third year to cover the contract for 3 additional years (i.e., 4 years remain after the modification). The extended contract services are similar to those provided in the first 2 years of the contract. Instructions (a) Prepare the journal entries for Dolan in 2014 and 2015 related to this service contract. (b) Prepare the journal entries for Dolan in 2016 related to the modified service contract, assuming a prospective approach. (c) Repeat the requirements for part (b), assuming Dolan and Lindsey agree on a revised set of services (fewer bookkeeping services but more tax services) in the extended contract period and the modification results in a separate performance obligation. 5 E18-5B (Variable Consideration)Carey Biotech enters into a licensing agreement with Yang Pharmaceutical for a drug under development. Carey will receive a payment of $15,000,000 if the drug receives regulatory approval. Based on prior experience in the drug-approval process, Carey determines it is 90% likely that the drug will gain approval and a 10% chance of denial. 1 Instructions (a) Determine the transaction price of the arrangement for Carey Biotech. (b) Assuming that regulatory approval was granted on December 20, 2014, and that Carey received the payment from Yang on January 15, 2015, prepare the journal entries for Carey. 5 E18-6B (Trailing Commission)Bosch's Agency sells an insurance policy offered by Hickman Insurance Company for a commission of $200. In addition, Bosch will receive an additional commission of $20 each year for as long as the policyholder does not cancel the policy. After selling the policy, Bosch does not have any remaining performance obligations. Based on Bosch's significant experience with these types of policies, it estimates that policyholders on average renew the policy for 4.5 years. It has no evidence to suggest that previous policyholder behavior will change. Instructions (a) Determine the transaction price of the arrangement for Bosch, assuming 100 policies are sold. (b) Prepare the journal entries, assuming that the 100 policies are sold in January 2014 and that Bosch receives commissions from Hickman. 5 E18-7B (Sales with Discounts)On July 3, 2014, Wynn Company sold to Sue Olson merchandise having a sales price of $9,000 (cost $5,400) with terms of 2/10, n/60, f.o.b. shipping point. Wynn estimates that merchandise with a sales value of $900 will be returned. An invoice totaling $150, terms n/30, was received by Olson on July 8 from Simpson Transport Service for the freight cost. Upon receipt of the goods, on July 5, Olson notified Wynn that $300 of merchandise contained flaws. The same day, Wynn issued a credit memo covering the defective merchandise and asked that it be returned at Wynn's expense. Wynn estimates the returned items to have a fair value of $150. The freight on the returned merchandise was $30, paid by Wynn on July 7. On July 12, the company received a check for the balance due from Olson. Instructions (a) Prepare journal entries for Wynn Company to record all the events noted above assuming sales and receivables are entered at gross selling price. (b) Prepare the journal entry assuming that Sue Olson did not remit payment until September 5. 5 E18-8B (Sales with Discounts)Larkin Marina has 300 available slips that rent for $1,000 per season. Payments must be made in full at the start of the boating season, April 1, 2015. The boating season ends October 31, and the marina has a December 31 year-end. Slips for future seasons may be reserved if paid for by December 31, 2015. Under a new policy, if payment for 2016 season slips is made by December 31, 2015, a 5% discount is allowed. If payment for 2017 season slips is made by December 31, 2015, renters get a 20% discount (this promotion hopefully will provide cash flow for major dock repairs). On December 31, 2014, all 300 slips for the 2015 season were rented at full price. On December 31, 2015, 200 slips were reserved and paid for the 2016 boating season, and 60 slips were reserved and paid for the 2017 boating season. Instructions (a) Prepare the appropriate journal entries for December 31, 2014, and December 31, 2015. (b) Assume the marina operator is unsophisticated in business. Explain the managerial significance of the above accounting to this person. 5 6 E18-9B (Allocate Transaction Price)Cabrera Co. enters into a contract to sell Product A and Product B on January 2, 2014, for an upfront cash payment of $220,000. Product A will be delivered in 2 years (January 2, 2016) and Product B will be delivered in 5 years (January 2, 2019). Cabrera Co. allocates the $220,000 to Products A and B on a relative standalone selling price basis as follows. Product A Product B Standalone Selling Prices $ 60,000 180,000 $240,000 Percent Allocated 25% 75% Allocated Amounts $ 55,000 165,000 $220,000 Cabrera Co. uses an interest rate of 6%, which is its incremental borrowing rate. 2 Instructions (a) Prepare the journal entries necessary on January 2, 2014, and December 31, 2014. (b) Prepare the journal entries necessary on December 31, 2015. (c) Prepare the journal entries necessary on January 2, 2016. 6 E18-10B (Allocate Transaction Price)Tate Company sells goods that cost $450,000 to Norris Company for $610,000 on January 2, 2014. The sales price includes an installation fee, which is valued at $60,000. The fair value of the goods is $550,000. The installation is considered a separate performance obligation and is expected to take 6 months to complete. Instructions (a) Prepare the journal entries (if any) to record the sale on January 2, 2014. (b) Tate prepares an income statement for the first quarter of 2014, ending on March 31, 2014 (installation was completed on June 18, 2014). How much revenue should Tate recognize related to its sale to Norris? 5 E18-11B (Allocate Transaction Price)Talkington Company manufactures equipment. Talkington's products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $400,000 to $1,500,000 and are quoted inclusive of installation. The installation process does not involve changes to the features of the equipment and does not require proprietary information about the equipment in order for the installed equipment to perform to specifications. Talkington has the following arrangement with Henderson Inc. Henderson purchases equipment from Talkington for a price of $1,200,000 and contracts with Talkington to install the equipment. Talkington charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Talkington determines installation service is estimated to have a fair value of $50,000. The cost of the equipment is $750,000. Henderson is obligated to pay Talkington the $1,200,000 upon the delivery and installation of the equipment. Talkington delivers the equipment on June 1, 2014, and completes the installation of the equipment on September 30, 2014. The equipment has a useful life of 10 years. Assume that the equipment and the installation are two distinct performance obligations which should be accounted for separately. Instructions (a) How should the transaction price of $1,200,000 be allocated among the service obligations? (b) Prepare the journal entries for Talkington for this revenue arrangement in 2014 assuming Talkington receives payment when installation is completed. 6 E18-12B (Allocate Transaction Price)Refer to the revenue arrangement in E18-11B. Instructions Repeat requirements (a) and (b) assuming Talkington does not have market data with which to determine the standalone selling price of the installation services. As a result, an expected cost plus margin approach is used. The cost of installation is $32,000; Talkington prices these services with a 25% margin relative to cost. 6 E18-13B (Allocate Transaction Price)The Oven Center is an experienced home appliance dealer. The Oven Center also offers a number of services together with the home appliances that it sells. Assume that The Oven Center sells ovens on a standalone basis. The Oven Center also sells installation services and maintenance services for ovens. However, The Oven Center does not offer installation or maintenance services to customers who buy ovens from other vendors. Pricing for ovens is as follows. Oven only Oven with installation service Oven with maintenance services Oven with installation and maintenance services 3 $1,200 1,275 1,460 1,500 In each instance in which maintenance services are provided, the maintenance service is separately priced within the arrangement at $260. Additionally, the incremental amount charged by The Oven Center for installation approximates the amount charged by independent third parties. Ovens are sold subject to a general right of return. If a customer purchases an oven with installation and/or maintenance services, in the event The Oven Center does not complete the service satisfactorily, the customer is only entitled to a refund of the portion of the fee that exceeds $1,200. Instructions (a) Assume that a customer purchases an oven with both installation and maintenance services for $1,500. Based on its experience, The Oven Center believes that it is probable that the installation of the equipment will be performed satisfactorily to the customer. Assume that the maintenance services are priced separately. Identify the separate performance obligations related to the The Oven Center revenue arrangement. (b) Indicate the amount of revenue that should be allocated to the oven, the installation, and to the maintenance contract. 8 E18-14B (Sales with Returns)Natural Growth Company is presently testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant to five of its largest customers the unconditional right of return to these products if not fully satisfied. The right of return extends for 4 months. Natural Growth sells these seeds on account for $1,800,000 (cost $950,000) on January 2, 2014. Customers are required to pay the full amount due by March 15, 2014. Instructions (a) Prepare the journal entry for Natural Growth at January 2, 2014, assuming Natural Growth estimates returns of 20% based on prior experience. (b) Assume that one customer returns the seeds on March 1, 2014, due to unsatisfactory performance. Prepare the journal entry to record this transaction, assuming this customer purchased $120,000 of seeds from Natural Growth. (c) Briefly describe the accounting for these sales if Natural Growth is unable to reliably estimate returns. 8 E18-15B (Sales with Returns)Gibbs Publishing Co. publishes college textbooks that are sold to bookstores on the following terms. Each title has a fixed wholesale price, terms f.o.b. shipping point, and payment is due 60 days after shipment. The retailer may return a maximum of 30% of an order at the retailer's expense. Sales are made only to retailers who have good credit ratings. Past experience indicates that the normal return rate is 15%, and the average collection period is 72 days. Instructions (a) Identify the revenue recognition criteria that Gibbs could employ concerning textbook sales. (b) Briefly discuss the reasoning for your answers in (a) above. (c) On July 1, 2014, Gibbs shipped books invoiced at $12,000,000 (cost $8,000,000). Prepare the journal entry to record this transaction. (d) On October 3, 2014, $1.0 million of the invoiced July sales were returned according to the return policy, and the remaining $11.0 was paid. Prepare the journal entries for the return and payment. 8 E18-16B (Sales with Repurchase)Molina Corp. sells idle machinery to Hollis Company on July 1, 2014, for $50,000. Molina agrees to repurchase this equipment from Hollis on June 30, 2015, for a price of $53,000 (an imputed interest rate of 6%). Instructions (a) Prepare the journal entry for Molina for the transfer of the asset to Hollis on July 1, 2014. (b) Prepare any other necessary journal entries for Molina in 2014. (c) Prepare the journal entry for Molina when the machinery is repurchased on June 30, 2015. 8 E18-17B (Repurchase Agreement)Yates Inc. enters into an agreement on March 1, 2014, to sell Jasper Metal Company aluminum ingots in 2 months. As part of the agreement, Yates also agrees to repurchase the ingots in 60 days at the original sales price of $300,000 plus 3%. (Because Yates has an unconditional obligation to repurchase the ingots at an amount greater than the original sales price, the transaction is treated as a financing.) 4 Instructions (a) Prepare the journal entry necessary on March 1, 2014. (b) Prepare the journal entry for the repurchase of the ingots on May 1, 2014. 8 E18-18B (Bill and Hold)Lockhart Company is involved in the design, manufacture, and installation of various types of wood products for large construction projects. Lockhart recently completed a large contract for Woolard Inc., which consisted of building 60 different types of concession counters for a new soccer arena under construction. The terms of the contract are that upon completion of the counters, Woolard would pay $4,000,000. Unfortunately, due to the depressed economy, the completion of the new soccer arena is now delayed. Woolard has therefore asked Lockhart to hold the counters for 2 months at its manufacturing plant until the arena is completed. Woolard acknowledges in writing that it ordered the counters and that they now have ownership. The time that Lockhart Company must hold the counters is totally dependent on when the arena is completed. Because Lockhart has not received additional progress payments for the arena due to the delay, Woolard has provided a deposit of $400,000. Instructions (a) Explain this type of revenue recognition transaction. (b) What factors should be considered in determining when to recognize revenue in this transaction? (c) Prepare the journal entry(ies) that Lockhart should make, assuming it signed a valid sales contract to sell the counters and received at the time the $400,000 deposit. 8 E18-19B (Consignment Sales)On May 3, 2014, Norman Company consigned 80 freezers, costing $400 each, to Tomkins Company. The cost of shipping the freezers amounted to $670 and was paid by Norman Company. On December 31, 2014, a report was received from the consignee, indicating that 40 freezers had been sold for $600 each. Remittance was made by the consignee for the amount due after deducting a commission of 5%, advertising of $150, and total installation costs of $260 on the freezers sold. Instructions (a) Compute the inventory value of the units unsold in the hands of the consignee. (b) Compute the profit for the consignor for the units sold. (c) Compute the amount of cash that will be remitted by the consignee. 8 E18-20B (Warranty Arrangement)On December 31, 2014, Barone Company sells production equipment to Fargo Inc. for $75,000. Barone includes a 1-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2014. Barone estimates the prices to be $73,200 for the equipment and $1,800 for the cost of the warranty. Instructions (a) Prepare the journal entry to record this transaction on December 31, 2014. (b) Repeat the requirements for (a), assuming that in addition to the assurance warranty, Barone sold an extended warranty (service-type warranty) for an additional 2 years (2016- 2017) for $1,200. 8 E18-21B (Warranties)Eaton Inc. manufactures and sells computers that include an assurancetype warranty for the first 90 days. Eaton offers an optional extended coverage plan under which it will repair or replace any defective part for 3 years from the expiration of the assurance-type warranty. Because the optional extended coverage plan is sold separately, Eaton determines that the 3 years of extended coverage represent a separate performance obligation. The total transaction price for the sale of a computer and the extended warranty is $2,700 on October 1, 2014, and Eaton determines the standalone selling price of each is $2,400 and $300, respectively. Further, Eaton estimates, based on historical experience, it will incur $200 in costs to repair defects that arise within the 90-day coverage period for the assurance-type warranty. The cost of the equipment is $1,100. Instructions (a) Prepare the journal entry (ies) to record the sale of the computer, cost of goods sold, and liabilities related to the warranties. (b) Briefly describe the accounting for the service-type warranty after the 90-day assurance-type warranty period. 5 9 E18-22B (Existence of a Contract)On January 1, 2014, Colson Co. enters into a contract to sell a customer a wiring base and shelving unit that sits on the base in exchange for $4,000. The contract requires delivery of the base first but states that payment for the base will not be made until the shelving unit is delivered. Colson identifies two performance obligations and allocates $1,600 of the transaction price to the wiring base and the remainder to the shelving unit. The cost of the wiring base is $950; the shelves have a cost of $425. Instructions (a) Prepare the journal entry on January 1, 2014, for Colson. (b) Prepare the journal entry on February 7, 2014, for Colson when the wiring base is delivered to the customer. (c) Prepare the journal entry on February 27, 2014, for Colson when the shelving unit is delivered to the customer and Colson receives full payment. 9 E18-23B (Existence of a Contract)On May 1, 2014, Shellhaner Inc. entered into a contract to deliver one of its specialty mowers to Gonzalez Landscaping Co. The contract requires Gonzalez to pay the contract price of $1,500 in advance on May 15, 2014. Gonzalez pays Shellhaner on May 15, 2014, and Shellhaner delivers the mower (with cost of $950) on May 31, 2014. Instructions (a) Prepare the journal entry on May 1, 2014, for Shellhaner. (b) Prepare the journal entry on May 15, 2014, for Shellhaner. (c) Prepare the journal entry on May 31, 2014, for Shellhaner. 9 E18-24B (Contract Costs)Ron's Reclaimers entered into a contract with Dex's Demolition to manage the processing of recycled materials on Dex's various demolition projects. Services for the 3-year contract include collecting, sorting, and transporting reclaimed materials to recycling centers or contractors who will reuse them. Ron's incurs selling commission costs of $3,000 to obtain the contract. Before performing the services, Ron's also designs and builds specialty receptacles and loading equipment that interfaces with Dex's demolition equipment at a cost of $36,000. These receptacles and equipment are retained by Ron's. Dex's promises to pay a fixed fee of $16,000 per year, payable every 6 months for the services under the contract. Ron's incurs the following costs: design services for the receptacles to interface with Dex's equipment $4,000, loading equipment controllers $8,000, and special testing and OSHA inspection fees $2,500 (some of Dex's projects are on government property). Instructions (a) Determine the costs that should be capitalized as part of Ron's Reclaimers revenue arrangement with Dex's Demolition. (b) Dex's also expects to incur general and administrative costs related to this contract, as well as costs of wasted materials and labor that likely cannot be factored into the contract price. Can these costs be capitalized? Explain. 9 E18-25B (Contract Costs, Collectibility)Refer to the information in E18-24B. Instructions (a) Does the accounting for capitalized costs change if the contract is for 1 year rather than 3 years? Explain. (b) Dex's Demolition is a startup company; as a result, there is more than insignificant uncertainty about Dex's ability to make the 6-month payments on time. Does this uncertainty affect the amount of revenue to be recognized under the contract? Explain. 10 11 *E18-26B (Recognition of Profit on Long-Term Contracts)During 2014 AFCO started a construction job with a contract price of $2,500,000. The job was completed in 2016. The following information is available. Costs incurred to date Estimated costs to complete Billings to date Collections to date 2014 $ 600,000 1,400,000 100,000 100,000 6 2015 $1,435,000 615,000 500,000 300,000 2016 $2,100,000 -0- 2,500,000 2,000,000 Instructions (a) Compute the amount of gross profit to be recognized each year assuming the percentage-of completion method is used. (b) Prepare all necessary journal entries for 2015. (c) Compute the amount of gross profit to be recognized each year, assuming the completedcontract method is used. 10 *E18-27B (Analysis of Percentage-of-Completion Financial Statements)In 2014, Landers Construction Corp. began construction work under a 5-year contract. The contract price was $25,000,000. Landers uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2014, follow. Balance Sheet Accounts receivable Construction in process Less: Billings Costs and recognized profit in excess of billings $150,500 $650,000 260,000 390,000 Income Statement Income (before tax) on the contract recognized in 2014 $130,000 Instructions (a) How much cash was collected in 2014 on this contract? (b) What was the initial estimated total income before tax on this contract? (AICPA adapted) 10 *E18-28B (Gross Profit on Uncompleted Contract) On July 1, 2014, Welton Inc. entered into a cost plus fixed fee contract to construct a prototype robotic assembly line for New Car Corporation. At the contract date, Welton estimated that it would take 2 years to complete the project at a cost of $4,000,000. The fixed fee stipulated in the contract is $750,000. Welton appropriately accounts for this contract under the percentage-of-completion method. During 2014 Welton incurred costs of $1,600,000 related to the project. The estimated cost at December 31, 2014, to complete the contract is $2,400,000. New Car was billed $1,200,000 under the contract. Instructions Prepare a schedule to compute the amount of gross profit to be recognized by Welton under the contract for the year ended December 31, 2014. Show supporting computations in good form. (AICPA adapted) 10 *E18-29B (Recognition of Revenue on Long-Term Contract and Entries)Young Tree Construction Company uses the percentage-of-completion method of accounting. In 2014, Young Tree began work under a contract with a contract price of $1,500,000. Other details follow: Costs incurred during the year Estimated costs to complete, as of December 31 Billings during the year Collections during the year 2014 $980,000 420,000 800,000 250,000 2015 $1,375,000 -0- 1,500,000 1,500,000 Instructions (a) What portion of the total contract price would be recognized as revenue in 2014? In 2015? (b) Assuming the same facts as those above except that Young Tree uses the completedcontract method of accounting, what portion of the total contract price would be recognized as revenue in 2015? (c) Prepare a complete set of journal entries for 2014 (using percentage-of-completion). 10 11 *E18-30B (Recognition of Profit and Balance Sheet Amounts for Long-Term Contracts) Harman Construction Company began operations January 1, 2014. During the year, Harman Construction entered into a contract with Kardon Corp. to construct a retail showcase facility. At that time, Harman estimated that it would take 2 years to complete the facility, at a total cost of $7,500,000. The total contract price for construction of the facility is $9,000,000. During the year, Harman incurred $3,040,000 in construction costs related to the construction project. The estimated cost to complete the contract is $4,560,000. Kardon Corp. was billed and paid 20% of the contract price. 7 Instructions Prepare schedules to compute the amount of gross profit to be recognized for the year ended December 31, 2014, and the amount to be shown as \"costs and recognized profit in excess of billings\" or \"billings in excess of costs and recognized profit\" at December 31, 2014, under each of the following methods. (a) Completed-contract method. (b) Percentage-of-completion method. (AICPA adapted) 13 *E18-31B (Franchise Entries)Burger Universe charges an initial franchise fee of $225,000. Upon the signing of the agreement, a payment of $25,000 is due. Thereafter, five annual payments of $40,000 are required. The credit rating of the franchisee is such that it would have to pay interest at 12% to borrow money. The franchise agreement is signed on August 1, 2014, and the franchise commences operation on October 1, 2014. Instructions Prepare the journal entries in 2014 for the franchisor under the following assumptions. (Round to the nearest dollar.) (a) No future services are required by the franchisor once the franchise starts operations. (b) The franchisor has substantial services to perform, once the franchise begins operations, to maintain the value of the franchise. (c) The total franchise fee includes training services (with a value of $7,500) for the period leading up to the franchise opening and for 2 months following opening. 13 *E18-32B (Franchise Fee, Initial Down Payment)On January 1, 2014, Shaw & Shaw signed an agreement, covering 4 years, to operate as a franchisee of World Premiere Salons for an initial franchise fee of $130,000. The amount of $20,000 was paid when the agreement was signed, and the balance is payable in four annual payments of $27,500 each, beginning January 1, 2015. The agreement provides that the down payment is not refundable and that no future services are required of the franchisor once the franchise commences operations on April 1, 2014. Shaw & Shaw's credit rating indicates that the company can borrow money at 10% for a loan of this type. Instructions (a) Prepare journal entries for World Premiere for 2014-related revenue for this franchise arrangement. (b) Prepare journal entries for World Premiere for 2014-related revenue for this franchise arrangement, assuming that in addition to the franchise rights, World Premiere also provides 1 year of operational consulting and training services, beginning on the signing date. These services have a value of $8,600. (c) Repeat the requirements for part (a), assuming that World Premiere must provide services to Shaw & Shaw throughout the franchise period to maintain the franchise value. 8