P18-5B (Completed-Contract and Percentage-of-Completion with Interim Loss) Limerock Custom Builders was established in 1971 by Jon Rock and initially built high-quality customized homes under contract with specific buyers. In the 1990s, Rock?s son joined the company and expanded Limerock?s activities into industrial and commercial retail markets. Upon the retirement of Limerock?s long-time financial manager, Rock?s son recently hired Flint, a former college friend, as the new controller for Limerock. Flint, has been associated with a public accounting firm for the last 6 years.Upon reviewing Limerock?s accounting practices, Flint observed that Limerock followed the completed-contract method of revenue recognition, a carryover from the years when individual home building was the majority of Limerock?s operations. Several years ago, the predominant portion of Limeorck?s activities shifted to the commerical retail and industrial building areas. From land acquisi-tion to the completion of construction, most building contracts cover several years. Under the circum-stances, Flint believes that Limeorck should follow the percentage-of-completion method of accounting. From a typical building contract, Flint developed the following data.SUNSHINE MALLContract price: $12,000,000 2014 2015 2016Estimated costs $3,000,000 $4,200,000 $2,800,000Progress billings 2,000,000 4,000,000 6,000,000Cash collections 1,600,000 3,800,000 6,600,000Instructions(a) Explain the difference between completed-contract revenue recognition and percentage-of-completion revenue recognition.(b) Using the data provided for the Sunshine Mall and assuming the percentage-of-completion method of revenue recognition is used, calculate Limerock?s revenue and gross profit for 2014, 2015, and 2016, under each of the following circumstances.433435c18BProblems.inddPage223/01/136:40PMf-392c18BProblems.indd Page 2 23/01/13 6:40 PM f-392 /208/WB00806_ONL/XXXXXXXXXXXXX/ch18/text_s/208/WB00806_ONL/XXXXXXXXXXXXX/ch18/text_s B Problems 3 (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, as planned. (2) Further assume that, as a result of unforeseen local ordinances and the fact that the building site was in a wetlands area, Limerock experienced cost overruns of $800,000 in 2014 to bring the site into compliance with the ordinances and to overcome wetlands barriers to construction.(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 $900,000 in 2015. It is not anticipated that any cost overruns will occur in 2016.

Practice Exam Chapters 18-20 Part II E20-7 (Basic Pension Worksheet) The following defined pension data of Rydell Corp. apply to the year 2014. Projected benefit obligation, 1/1/14 (before amendment) Plan assets, 1/1/14 Pension liability On January 1, 2014, Rydell Corp., through plan amendment, grants prior service benefits having a present value of Settlement rate Service cost Contributions (funding) Actual (expected) return on plan assets Benefits paid to retirees Prior service cost amortization for 2014 Instructions: For 2014, prepare a pension worksheet for Rydell Corp. that shows the journal entry for pension expense and the year-end the related pension accounts. Items Annual Pension Expense RYDELL CORP. Pension Worksheet2014 General Journal Entries C a OCI - Prior Service Cost s h Mem Pension Asset/ Liability Projecte Benefit Obligatio Balance, December 31, 2013 (a) Prior service cost Balance, January 1, 2014 (b) Service cost (c) Interest cost (d) Actual return (e) Amortization of PSC (f) Contributions (g) Benefits Journal entry for 2014 Accumulated OCI, December 31, 2013 Balance, December 31, 2014 Interest cost = $560,000 + $120,000 = $680,000 Settlement rate of 9% = $61,200. Note: We show actual return on the worksheet to ensure that plan assets are properly reported. If expected and actual retu an additional adjustment is made to compute the proper amount of pension expense. Projected benefit obligation, 1/1/14 (before amendment) Plan assets, 1/1/14 Pension liability On January 1, $560,000 546,200 13,800 120,000 2014, Rydell Corp., through plan amendment, grants prior service benefits having a present value of Settlement rate Service cost Contributions (funding) Actual (expected) return on plan assets Benefits paid to retirees Prior service cost amortization for 2014 9% 58,000 65,000 52,280 40,000 17,000 Instructions: For 2014, prepare a pension worksheet for Rydell Corp. that shows the journal entry for pension expense and the year-end the related pension accounts. Items Balance, December 31, 2013 (a) Prior service cost Balance, January 1, 2014 (b) Service cost (c) Interest cost (d) Actual return (e) Amortization of PSC (f) Contributions (g) Benefits Journal entry for 2014 Accumulated OCI, December 31, 2013 Balance, General Journal Entries Annual Pension Expense RYDELL CORP. Pension Worksheet2014 Memo Record Cash OCI - Prior Service Cost Pension Asset/ Liability Projected Benefit Obligation December 31, 2014 Interest cost = $560,000 + $120,000 = $680,000 Settlement rate of 9% = $61,200. Note: We show actual return on the worksheet to ensure that plan assets are properly reported. If expected and actual retu an additional adjustment is made to compute the proper amount of pension expense