CHAPTER 5 Revenue Recognition and Profitability Analysis 289 8. Hansen Construction Inc. has consistently recognized revenue over time according to percentage of completion. During 2016, Hansen started work on a $3,000,000 fixed-price construction contract. The accounting records disclosed the following data for the year ended December 31, 2016: Costs incurred $ 930,000 Estimated cost to complete 2,170,000 Progress billings 1,100,000 Collections 700,000 At May 31 ($000 omitted) 2016 2017 Actual costs to date $ 6,000 $15,000 Estimated costs to complete 12,000 5,000 Progress billings to date 5,000 14,000 Cash collected to date 4,000 12,000 ● LO5–8 How much loss should Hansen have recognized in 2016? a. $180,000 b. $230,000 c. $ 30,000 d. $100,000 The following question dealing with income measurement is adapted from questions that previously appeared on Certified Management Accountant (CMA) examinations. The CMA designation sponsored by the Institute of Management Accountants ( www.imanet.org ) provides members with an objective measure of knowledge and competence in the field of management accounting. Determine the response that best completes the statements or questions. 1. Roebling Construction signed a $24 million contract on August 1, 2015, with the city of Candu to construct a bridge over the Vine River. Roebling’s estimated cost of the bridge on that date was $18 million. The bridge was to be completed by April 2018. Roebling recognizes revenue over time according to percentage of completion. Roebling’s fiscal year ends May 31. Data regarding the bridge contract are presented in the schedule below. CMA Exam Questions ● LO5–8 The gross profit or loss recognized in the fiscal year ended May 31, 2016, from this bridge contract is a. $6,000,000 gross profit. b. $2,000,000 gross profit. c. $3,000,000 gross profit. d. $1,000,000 gross profit. An alternate exercise and problem set is available in the Connect library. F it & Slim (F&S) is a health club that offers members various gym services. Required: 1. Assume F&S offers a deal whereby enrolling in a new membership for $700 provides a year of unlimited access to facilities and also entitles the member to receive a voucher redeemable for 25% off yoga classes for one year. The yoga classes are offered to gym members as well as to the general public. A new membership normally sells for $720, and a one-year enrollment in yoga classes sells for an additional $500. F&S estimates that approximately 40% of the vouchers will be redeemed. F&S offers a 10% discount on all one-year enrollments in classes as part of its normal promotion strategy. a. How many performance obligations are included in the new member deal? b. How much of the contract price would be allocated to each performance obligation? Explain your answer. c. Prepare the journal entry to recognize revenue for the sale of a new membership. Clearly identify revenue or deferred revenue associated with each performance obligation. Problems P 5–1 Upfront fees; performance obligations ● LO5–4, LO5–5
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