An entity sells equipment service contracts that cover a two year period. The sale price
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- On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?PROBLEM 1 SE-HOON COMPANY sells equipment service contracts that cover a two-year period. The sale price of each contract is P600. The past experience is that, of the total pesos spent for repairs on service contracts, 40% is incurred evenly during the first contract year and 60% evenly during the second contract year. The entity sold 1,000 contracts evenly throughout 2019. 1. What is the contract revenue for 2019? a. 120,000 b. 240,000 c. 300,000 d. 150,000 2. What amount should be reported as deferred service revenue on December 31, 2019? a. 540,000 b. 480,000 c. 360,000 d. 300,000 3. What is the contract revenue for 2020? a. 180,000 b. 360,000 c. 300,000 d. 120,000 4. What is the contract revenue for 2021? a. 240,000 b. 360,000 c. 180,000 d. 0. West Star Realty Corp. sells a commercial lot in the month of November 2021 underfollowing terms (including VAT):Total contract price P1,120,000Down payment. 11-01-2021 112,000First installment 12-01-2021 112,000The output VAT for the 4th quarter should be:a. P12,000 c. P30,000b. P24,000 d. P120,000
- Zoro Company enters into a contract to sell Product A and Product B on July 1, 2020 for an upfront cash payment of P250,000. Product A will be delivered at the end of the year, and Product B will be delivered the following year. Zoro Company sells Product A for P80,000 and Product B for P240,000. 1. How many performance obligations are there in the contract? 2.what is the transaction price? 3.how much is revenue to be recognized in 2020? 4. how much is revenue to be recognized in 2021?A. On January 1, 2020, Machinery Corp. enters into a contract with a customer for the sale of a machine and relatedone-yearmaintenance services for a total contract price of P2,000.000. Machinery Corp. regulariy sells these items separately. If they were to be purchased separately, their stand-alone selling prices are as follows: • P1,800,000 for the machine; and P600,000 for the one-year maintenance services Machinery Corp transfesthe machine, andcolects the total contract price, on February 1, 2020. The maintenance services start on that date. Required: Analyze the five steps of model of revenue recognition.The Naples Company uses the percentage-of-completion method and the cost-to-cost method for its long-term construction contracts. On one such contract, Naples expects total revenues of P260,000. During the first year, Naples incurred costs pf P50,000 and billed the customer P30,000 under the contract. At what net amount should Naples Construction in Progress for this contract be reported at the end of the first year? a. P 35,000 b. 65,000
- How much is the contract revenue to date in the year 2019? Double Dragon receives a contract to build a building over a period of 3 years for a price of P14,000,000. Information relating to the performance of the contract is summarized as follows: 2019 Construction Costs incurred- yearly 3,000,000 4,840,000 3,360,000 2017 2018 Estimated Costs to Complete 7,000,000 3,360,000 Billings during the year 2,400,000 5,200,000 6,400,000 Collections during the year 2,000,000 5,400,000 6,600,000The past experience is that, of the total pesos spent for Problem 1-20 (AICPA Adapted) repairs on service contracts, 40% is incurred evenly during Dunne Company sells equipment service contracts that cover a two-year period. The sale price of each contract is P600 The past experience is that, of the total pesos spent for the first contract year and 60% evenly during the second contract year. The entity sold 1,000 contracts evenly throughout 2020. 1. What is the contract revenue for 2020? a. 120,000 b. 240,000 c. 300,000 d. 150,000Contract price of $2,400,000. Estimated. Information relating to the costs and billings for this contract is as follows: 2019 2020 2021 Costs incurred during the year 700,000 1,100,000 750,000 Estimated costs to complete 1,300,000 800,000 Instructions 1- Using the percentage-of-completion method, compute the gross profit or loss to be recognized each year. 2- Using the cost recovery method, compute the gross profit or loss to be recognized each year
- Stranger Company sells appliance service contracts, agreeing to repair appliances for a two-year period. Stranger’s past experience is that, of the total pesos spent for repairs on service contracts, 40% is incurred evenly during the first contract year and 60% evenly during the second contract year. Receipts from service contract sales for the two years ended December 31, 2027, are as follows: 2026 – P500,000 2027 – P600,000 Receipts from contracts are credited to unearned service contract revenue. Assume that all contract sales are made evenly during the year. What amount should Stranger report as unearned service contract revenue at December 31, 2027? a. 360,000 b. 480,000 c. 630,000 d. 470,000A On January 1. 2020. Machinery Corp. enters into a contract with a customer for the sale of a machine and related one year maintenance services for a total contract price of P2000.000. Machinery Corp. regularly sells these items separately. If they were to be purchased separately, their stand-alone selling prices are as follows: P1.800.000 for the machines and P600.000 for the one-year maintenance services Machinery Corp transfers the machine, and collects the total contract price on February 1, 2020 The maintenance services start on that date. Required Analyze the five steps of model of revenue recognition
