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Spiceland_Inter_Accounting8e_Ch05

284 SECTION 1 The Role of Accounting as an Information System Required: 1. Estimate the stand-alone selling price of the installation service using the adjusted market assessment approach. 2. Estimate the stand-alone selling price of the installation service using the expected cost plus margin approach. 3. Estimate the stand-alone selling price of the installation service using the residual approach. Access the FASB Accounting Standards Codification at the FASB website ( asc.fasb.org ). Required: Determine the specific citation for accounting for each of the following items: 1. What alternative approaches can be used to estimate variable consideration? 2. What alternative approaches can be used to estimate the stand-alone selling price of performance obligations that are not sold separately? 3. What determines the timing of revenue recognition with respect to licenses? Monitor Muffler sells franchise arrangements throughout the United States and Canada. Under a franchise agreement, Monitor receives $600,000 in exchange for satisfying the following separate performance obligations: (1) franchisees have a five-year right to operate as a Monitor Muffler retail establishment in an exclusive sales territory, (2) franchisees receive initial training and certification as a Monitor Mechanic, and (3) franchisees receive a Monitor Muffler building and necessary equipment. The stand-alone selling price of the initial training and certification is $15,000, and $450,000 for the building and equipment. Monitor estimates the stand-alone selling price of the five-year right to operate as a Monitor Muffler establishment using the residual approach. Monitor received $75,000 on July 1, 2016, from Perkins and accepted a note receivable for the rest of the franchise price. Monitor will construct and equip Perkins’ building and train and certify Perkins by September 1, and Perkins’ five-year right to operate as a Monitor Muffler establishment will commence on September 1 as well. Required: 1. What amount would Monitor calculate as the stand-alone selling price of the five-year right to operate as a Monitor Muffler retail establishment? 2. What journal entry would Monitor record on July 1, 2016, to reflect the sale of a franchise to Dan Perkins? 3. How much revenue would Monitor recognize in the year ended December 31, 2016, with respect to its franchise arrangement with Perkins? (Ignore any interest on the note receivable.) Access the FASB Accounting Standards Codification at the FASB website ( asc.fasb.org ). Required: Determine the specific citation for accounting for each of the following items: 1. What disclosures are required with respect to performance obligations that the seller is committed to satisfying but that are not yet satisfied? 2. What disclosures are required with respect to uncollectible accounts receivable, also called impairments of receivables? 3. What disclosures are required with respect to significant changes in contract assets and contract liabilities? Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The project began in 2016 and was completed in 2017. Data relating to the contract are summarized below: E 5–14 FASB codification research ● LO5–6, LO5–7 CODE  E 5–15 Franchises; residual method ● LO5–6, LO5–7 E 5–16 FASB codification research ● LO5–8 CODE  E 5–17 Long-term contract; revenue recognition over time and at a point in time ● LO5–9 2016 2017 Costs incurred during the year $ 300,000 $1,575,000 Estimated costs to complete as of 12/31 1,200,000 –0– Billings during the year 380,000 1,620,000 Cash collections during the year 250,000 1,750,000 Required: 1. Compute the amount of revenue and gross profit or loss to be recognized in 2016 and 2017 assuming Nortel recognizes revenue over time according to percentage of completion. 2. Compute the amount of revenue and gross profit or loss to be recognized in 2016 and 2017 assuming this project does not qualify for revenue recognition over time. 3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2016 assuming Nortel recognizes revenue over time according to percentage of completion. 4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2016 assuming this project does not qualify for revenue recognition over time.


Spiceland_Inter_Accounting8e_Ch05
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