CH 06 - Problem Inventory Solutions

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition
SOLUTIONS TO EXERCISES
EXERCISE 6-1 (20-25 minutes)
1. A service is being sold – Costco will provide the customer with access to the store and
merchandise for one year.
2. A combination of goods and services is being sold – DOT is providing goods and financing
services for one year.
3. A service is being sold – Toronto Blue Jays is providing entertainment services for April 1
through October.
4. A service is being sold – CIBC is providing financing services (a loan) for two years.
5. A service is being sold – Seneca is providing educational services for September to
December.
6. A good is being sold – Sears is providing the sweater.
7. A combination of goods and services is being sold – Hometown is providing goods and
warranty service.
8. A service is being sold - Premier Health Clubs is in business to provide health club facilities
and services to members.
Solutions Manual 6-1 Chapter 6

Copyright © 2016 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited.
EXERCISE 6-2 (5–10 minutes)
(a) The journal entry to record the sale and related cost of goods sold are as follows.
Accounts Receivable ....................................... 600,000

Sales Revenue ($610,000 – $10,000) ....... 600,000
Cost of Goods Sold ......................................... 500,000

Inventory ................................................ 500,000
(b)
Cash ................................................................. 610,000
Sales Discounts Forfeited ...................... 10,000
Accounts Receivable .............................. 600,000

* EXERCISE 6-27 (20–25 minutes)
(a) Gross profit recognized in:
2017 2018 2019

Contract price $1,600,000 $1,600,000 $1,600,000
Costs:
Costs to date $400,000 $825,000 $1,070,000
Estimated costs to
complete 600,000 1,000,000 275,000 1,100,000 0 1,070,000
Total estimated profit 600,000 500,000 530,000
Percentage completed
to date X 40%* X 75%** X 100%
Total gross profit
recognized 240,000 375,000 530,000
Less: Gross profit
recognized in previous 0 240,000 375,000
years
Gross profit recognized
in current year $ 240,000 $ 135,000 $ 155,000
* *$400,000 ÷ $1,000,000 **$825,000 ÷ $1,100,000

* EXERCISE 6-27 (Continued)
(b)
2018
Contract Asset/Liability ($825,000 – $400,000) 425,000
Materials, Cash, Payables, etc. ............... 425,000
Accounts Receivable ($900,000 – $300,000) . 600,000

Contract Asset/Liability ........................... 600,000
Cash ($810,000 – $270,000) ............................ 540,000

Accounts Receivable ............................... 540,000
Contract Asset/Liability .................................. 560,000

Revenue from Long-Term Contracts ...... 560,000*
*$1,600,000 X (75% – 40%)
Construction Expenses ................................ 425,000

Contract Asset/Liability .......................... 425,000
(c) Gross profit recognized in:

Gross profit 2017 2018 2019
$–0– $–0– $530,000*
*$1,600,000 – $1,070,000

* EXERCISE 6-29 (15–20 minutes)
$640,000
(a) 2017: X $2,200,000 = $880,000
$640,000 + $960,000
2018: $2,200,000 (contract price) minus $880,000 (revenue

recognized in 2017) = $1,320,000 (revenue recognized
in 2018).
(b) All $2,200,000 of the contract price is recognized as revenue

in 2018.
(c) Using the percentage-of-completion method, the following

entries would be made:
Contract Asset/Liability .................................. 640,000

Materials, Cash, Payables, etc............... 640,000
Accounts Receivable ...................................... 420,000

Contract Asset/Liability ......................... 420,000
Cash ................................................................. 350,000

Accounts Receivable ............................. 350,000
To record revenues:
Contract Asset/Liability ................................. 880,000
Revenue from Long-Term Contracts ...... 880,000*
*$2,200,000 X [($640,000 ÷ ($640,000 + $960,000)]
To record expenses:
Construction Expenses ................................. 640,000
Construction Asset/Liability ................... 640,000

*PROBLEM 6-9
(a) 2017 2018 2019

Contract price $900,000 $900,000 $900,000
Less estimated cost:
Costs to date 270,000 450,000 610,000
Estimated cost to complete 330,000 150,000 —
Estimated total cost 600,000 600,000 610,000
Estimated total gross profit $300,000 $300,000 $290,000
Gross profit recognized in—
2017: $270,000 X $300,000 = $135,000

$600,000
2018: $450,000 X $300,000 = $225,000

$600,000
Less 2017 recognized gross
profit 135,000
Gross profit in 2018 $ 90,000
2019: Less 2017–2018 recognized

gross profit 225,000
Gross profit in 2019 $ 65,000
(b) In 2017 and 2018, no gross profit would be recognized.
Total Revenue .................................... $900,000

Total Construction Expenses .............. (610,000)
Gross profit recognized in 2019 .......... $290,000

LEGAL NOTICE
Copyright © 2016 by John Wiley & Sons Canada, Ltd. or related companies. All
rights reserved.
The data contained in these files are protected by copyright. This manual is furnished
under licence and may be used only in accordance with the terms of such licence.
The material provided herein may not be downloaded, reproduced, stored in a

retrieval system, modified, made available on a network, used to create derivative
works, or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording, scanning, or otherwise without the prior written permission
of John Wiley & Sons Canada, Ltd.
MMXV xi F1


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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Eleventh Canadian Edition

Solutions Manual 6-1 Chapter 6

EXERCISE 6-2 (5–10 minutes)

Accounts Receivable ....................................... 600,000

Cost of Goods Sold ......................................... 500,000

Solutions Manual 6-2 Chapter 6

* EXERCISE 6-27 (20–25 minutes)

(a) Gross profit recognized in:

2017 2018 2019

* *$400,000 ÷ $1,000,000 **$825,000 ÷ $1,100,000

Solutions Manual 6-3 Chapter 6

* EXERCISE 6-27 (Continued)

Accounts Receivable ($900,000 – $300,000) . 600,000

Cash ($810,000 – $270,000) ............................ 540,000

Contract Asset/Liability .................................. 560,000

Construction Expenses ................................ 425,000

(c) Gross profit recognized in:

Solutions Manual 6-4 Chapter 6

* EXERCISE 6-29 (15–20 minutes)

2018: $2,200,000 (contract price) minus $880,000 (revenue

(b) All $2,200,000 of the contract price is recognized as revenue

(c) Using the percentage-of-completion method, the following

Contract Asset/Liability .................................. 640,000

Accounts Receivable ...................................... 420,000

Cash ................................................................. 350,000

*$2,200,000 X [($640,000 ÷ ($640,000 + $960,000)]

Solutions Manual 6-5 Chapter 6

(a) 2017 2018 2019

Gross profit recognized in—

2017: $270,000 X $300,000 = $135,000

2018: $450,000 X $300,000 = $225,000

2019: Less 2017–2018 recognized

(b) In 2017 and 2018, no gross profit would be recognized.

Total Revenue .................................... $900,000

Solutions Manual 6-6 Chapter 6

The material provided herein may not be downloaded, reproduced, stored in a

Solutions Manual 6-7 Chapter 6

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