Question
P18-5 (Allocate Transaction Price, Returns, and Consignments) Ritt Ranch & Farm is a distributor of ranch and farm equipment. Its products range from small tools,
| P18-5 (Allocate Transaction Price, Returns, and Consignments) Ritt Ranch & Farm is a distributor of ranch and farm equipment. Its products range from small tools, power equipment for trench-digging and fencing, grain dryers, and barn winches. Most products are sold direct via its company catalog and Internet site. However, given some of its specialty products, select farm implement stores carry Ritts products. Pricing and cost information on three of Ritts most popular products are as follows. Item Standalone Selling Price (Cost) Mini-trencher $ 3,600 ($2,000) Power fence hole auger 1,200 ($800) Grain/Hay dryer 14,000 ($11,000) Instructions Respond to the requirements related to the following independent revenue arrangements for Ritt Ranch & Farm. (a) On January 1, 2014, Ritt sells augers to Mills Farm & Fleet for $48,000. Mills signs a 6-month note at an annual interest rate of 12%. Ritt allows Mills to return any auger that it cannot use within 60 days and receive a full refund. Based on prior experience, Ritt estimates that 5% of units sold to custom- ers like Mills will be returned (using the most likely outcome approach). Ritts costs to recover the products will be immaterial, and the returned augers are expected to be resold at a profit. Prepare the journal entry for Ritt on January 1, 2014. (b) On August 10, 2014, Ritt sells 16 mini-trenchers to a farm co-op in western Minnesota. Ritt provides a 4% volume discount on the mini-trenchers if the co-op has a 15% increase in purchases from Ritt compared to the prior year. Given the slowdown in the farm economy, sales to the co-op have been flat, and it is highly uncertain that the benchmark will be met. Prepare the journal entry for Ritt on August 10, 2014. (c) Ritt sells three grain/hay dryers to a local farmer at a total contract price of $45,200. In addition to the dryers, Ritt provides installation, which has a standalone sales value of $1,000 per unit installed. The contract payment also includes a $1,200 maintenance plan for the dryers for 3 years after instal- lation. Ritt signs the contract on June 20, 2014, and receives a 20% down payment from the farmer. The dryers are delivered and installed on October 1, 2014, and full payment is made to Ritt. Prepare the journal entries for Ritt in 2014 related to this arrangement. (d) On April 25, 2014, Ritt ships 100 augers to Farm Depot, a farm supply dealer in Nebraska, on con- signment. By June 30, 2014, Farm Depot has sold 60 of the consigned augers at the listed price of $1,200 per unit. Farm Depot notifies Ritt of the sales, retains a 10% commission, and remits the cash due Ritt. Prepare the journal entries for Ritt and Farm Depot for the consignment arrangement.
Instructions: | ||||||
| (a) Explain the difference between completed-contract revenue recognition and percentage- of-completion revenue recognition. | ||||||
| Enter text answer here as appropriate. | ||||||
| (b) Using the data provided for the Bluestem Tractor Plant and assuming the percentage-of-completion method of revenue recognition is used, calculate RCBs revenue and gross profit for 2014, 2015, and 2016, under each of the following circumstances. | ||||||
| (1) Assume that all costs are incurred, all billings to customers are made, and all collections from customers are received within 30 days of billing, the RCBs revenue, cost of sales, and gross profit for 2014, 2015, and 2016, are calculated as follows: | ||||||
| Percentage-of-Completion (Cost-to-Cost Basis) | ||||||
| ($000 omitted) | ||||||
| Year | Contract Price | Costs to Date | Estimated Total Costs | Estimated Gross Profit | Percent Complete | |
| 2014 | Amount | Amount | Formula | Formula | Formula | |
| 2015 | Amount | Amount | Formula | Formula | Formula | |
| 2016 | Amount | Amount | Formula | Formula | Formula | |
| Revenue recognition | ||||||
| Year | Contract Price | Percent Complete | Revenue Recognizable | Less Prior Year(s) | Current Year | |
| 2014 | Amount | Formula | Formula | Formula | Formula | |
| 2015 | Amount | Formula | Formula | Formula | Formula | |
| 2016 | Amount | Formula | Formula | Formula | Formula | |
| Profit recognition | ||||||
| Year | Estimated Profit | Percent Complete | Profit Recognizable | Less Prior Year(s) | Current Year | |
| 2014 | Amount | Formula | Formula | Formula | Formula | |
| 2015 | Amount | Formula | Formula | Formula | Formula | |
| 2016 | Amount | Formula | Formula | Formula | Formula | |
| (2) Further assume that, as a result of unforeseen local ordinances and the fact that the building site | ||||||
| was in a wetlands area, RCB experienced cost overruns of | $800,000 | in 2014 to bring | ||||
| the site into compliance with the ordinances and to overcome wetlands barriers to construction. | ||||||
| Percentage-of-Completion (Cost-to-Cost Basis) | ||||||
| ($000 omitted) | ||||||
| Year | Contract Price | Costs to Date | Estimated Total Costs | Estimated Gross Profit | Percent Complete | |
| 2014 | Amount | Amount | Amount | Formula | Formula | |
| 2015 | Amount | Amount | Amount | Formula | Formula | |
| 2016 | Amount | Amount | Amount | Formula | Formula | |
| Revenue recognition | ||||||
| Year | Contract Price | Percent Complete | Revenue Recognizable | Less Prior Year(s) | Current Year | |
| 2014 | Amount | Formula | Formula | Formula | Formula | |
| 2015 | Amount | Formula | Formula | Formula | Formula | |
| 2016 | Amount | Formula | Formula | Formula | Formula | |
| Profit recognition | ||||||
| Year | Estimated Profit | Percent Complete | Profit Recognizable | Less Prior Year(s) | Current Year | |
| 2014 | Amount | Formula | Formula | Formula | Formula | |
| 2015 | Amount | Formula | Formula | Formula | Formula | |
| 2016 | Amount | Formula | Formula | Formula | Formula | |
| (3) Further assume that, in addition to the cost overruns of | $800,000 | for this contract incurred | ||||
| under part (b)2, inflationary factors over and above those anticipated in the development of the | ||||||
| original contract cost have caused an additional cost overrun of | $850,000 | in 2015. It is | ||||
| not anticipated that any cost overruns will occur in 2016. | ||||||
| Percentage-of-Completion (Cost-to-Cost Basis) | ||||||
| ($000 omitted) | ||||||
| Year | Contract Price | Costs to Date | Estimated Total Costs | Estimated Gross Profit | Percent Complete | |
| 2014 | Amount | Amount | Amount | Formula | Formula | |
| 2015 | Amount | Amount | Amount | Formula | Formula | |
| 2016 | Amount | Amount | Amount | Formula | Formula | |
| Revenue recognition | ||||||
| Year | Contract Price | Percent Complete | Revenue Recognizable | Less Prior Year(s) | Current Year | |
| 2014 | Amount | Formula | Formula | Formula | Formula | |
| 2015 | Amount | Formula | Formula | Formula | Formula | |
| 2016 | Amount | Formula | Formula | Formula | Formula | |
| Profit recognition | ||||||
| Year | Estimated Profit | Percent Complete | Profit Recognizable | Less Prior Year(s) | Current Year | |
| 2014 | Amount | Formula | Formula | Formula | Formula | |
| 2015 | Amount | Formula | Formula | Formula | Formula | |
| 2016 | Amount | Formula | Formula | Formula | Formula | |
| Enter text answer as appropriate. | ||||||
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Social Media Audit Measure For Impact
Authors: Urs E. Gattiker
2013 Edition
1461436028, 978-1461436027
