Reference no: EM131784160

Intermediate Accounting Assignment: Revenue from Contracts with Customers

Problem 1

An entity sells machinery at a price of $10,000. The machinery comes with a one-year warranty at no extra cost to the customer. In addition, an extended warranty is also sold for $2,000 that covers years 2-3. Customers can purchase the extended warranty at any time within the first year of purchase.

If a customer purchases the extended warranty at the same time as the machinery, they can purchase it for a total price of $11,300.

Expenses incurred in servicing the extended warranty are expected to be incurred relatively evenly over the two year extended warranty period.

Required -

Write all journal entries relative to the above for a sale of machinery and extended warranty taking place on January 2, 20x3.

Problem 2

The Sweitzer Corporation (SC) signed a $6 million contract in 20x1 to build an office tower. Data on the contract is as follows:

	20x1	20x2	20x3	20x4
Costs incurred during year	$1,600,000	1,500,000	1,400,000	800,000
Expected costs to complete	3,400,000	1,700,000	1,000,000	-
Billings	2,500,000	-	-	3,500,000

Required -

For each of the parts below, prepare the 'mini' income statement for the project for each year and calculate the net investment of the project that will be shown on the balance sheet at the end of each year.

a. SC uses an input based approach to calculating the percentage of completion.

b. SC uses an output based approach to calculating the percentage of completion and has calculated the percentages of completion as follows:

20x1 Ð 25% 20x2 Ð 60% 20x3 Ð 90% 20x4 Ð 100%