E18-16 (LO3) Sales With Returns

On March 10, 2017, Steele Company sold tool sets to Barr Hardware with terms of n/60, f.o.b.
shipping point. Steele allows Barr to return any unused tool sets within 60 days of purchase.
Steele estimates the cost of recovering the products will be immaterial, and the returned tools
sets can be resold at a profit. On March 25, 2017, Barr returned some tool sets and received a
credit to its account. Information concerning the sale and return follows.

Number of tool sets sold 200

Selling price of each tool set $ 50.00
Cost of each tool set $ 30.00
Number of sets estimated to be returned 10
Number of tool sets returned by Barr 6

Instructions:
(a) Prepare journal entries for Steele to record (1) the sale on March 10, 2017, (2) the return
on March 25, 2017, and (3) any adjusting entries required on March 31, 2017 (when
Steele prepares financial statements). Steele believes the original estimate of returns is
correct.

(1) Debit Credit

Mar. 10

(2) Debit Credit

Mar. 25

(3) Debit Credit

Mar. 31
(b) Indicate the income statement and balance sheet reporting by Steele at March 31, 2017,
of the information related to the Barr sales transaction.

Income Statement (partial)

For the Quarter Ended March 31, 2017

Balance Sheet (partial)

At March 31, 2017
E18-17 (LO3) Sales With Returns
On March 10, 2017, Steele Company sold tool sets to Barr Hardware for cash, f.o.b. shipping
point. Steele allows Barr to return any unused tool sets within 60 days of purchase. Steele
estimates the cost of recovering the products will be immaterial, and the returned tools sets can
be resold at a profit. On March 25, 2017, Barr return some tool sets. Information concerning the
sale and returns follows.

Number of tool sets sold 200

Selling price of each tool set $ 50.00
Cost of each tool set $ 30.00
Number of sets estimated to be returned 10
Number of tool sets returned by Barr 6

Instructions:
(a) Prepare journal entries for Steele to record (1) the sale on March 10, 2017, (2) the return
on March 25, 2017, and (3) any adjusting entries required on March 31, 2017 (when
Steele prepares financial statements). Steele believes the original estimate of returns is
correct.

(1) Debit Credit

Mar. 10

(2) Debit Credit

Mar. 25

(3) Debit Credit

Mar. 31
(b) Indicate the income statement and balance sheet reporting by Steele at March 31, 2017,
of the information related to the Barr sales transaction.

Income Statement (partial)

For the Quarter Ended March 31, 2017

Balance Sheet (partial)

At March 31, 2017
E18-18 (LO3) Sales With Allowances
On October 2, 2017, Laplante Company sold elite camping gear to Lynch Outfitters. As part of
the sales agreement, Laplante includes a provision that if Lynch is dissatisfied with the product,
Laplante will grant an allowance on the sales price or agree to take the product back (although
returns are rare, given the long-term relationship between Laplante and Lynch). October 16,
2017, Laplante grants an allowance to Lynch because the color for some of the items delivered
was a bit different than what appeared in the catalog. Additional information concerning the sale
follows:

Sales price of camping gear $ 6,000

Cost of gear sold 3,600
Expected total allowances to Lynch 800
Allowance granted to Lynch on October 16, 2017 400

Instructions:
(a) Prepare journal entries for Laplante to record (1) the sale on October 2, 2017, (2) the
granting of the allowance on October 16, 2017, and, (c) any adjusting required on October
31, 2017 (when Laplante prepares financial statements). Laplante now estimates additional
allowances of $250 will be granted to Lynch in the future.

(1) Debit Credit

Oct. 2

(2) Debit Credit

Oct. 16

(3) Debit Credit

Oct. 31
(b) Indicate the income statement and balance sheet reporting by Laplante at October 31,
2017, of the information related to the Lynch transaction.

Income Statement (partial)

For the Month Ended October 31, 2017

Balance Sheet (partial)

At October 31, 2017
E18-19 (LO3) Sales with Returns
On June 3, 2017, Hunt Company sold to Ann Mount merchandise with terms of n/60, f.o.b.
shipping point. Additional information concerning the sale follows.

Sales price of merchandise $ 8,000

Cost of merchandise 6,000
Estimated sales value of returns 800
Invoice received by Mount on June 8 from Olympic Transport
Service for freight cost 120

Upon receipt of the goods, on June 8, Mount returned to Hunt some of the merchandise
containing flaws. Hunt estimates the returned items are expected to be resold at a profit.
Additional information on the return follows.

Amount of merchandise returned $ 300

Freight on the returned merchandise paid by Hunt on June 8 24

On July 16, the company received a check for the balance due from Mount.

Instructions:
Prepare journal entries for Hunt Company to record all the events in June and July.

Debit Credit
Jun. 3

Jun. 3

Jun. 8

Jun. 8

Jun. 8

Jul. 16
E18-35 (LO5) Gross Profit on Uncompleted Contract
On April 1, 2017, Dougherty Inc. entered into a cost-plus-fixed-fee contract to construct an
electric generator for Altom Corporation. At the contract date, Dougherty estimated that it
would take 2 years to complete the project. Additional information on the project follows:

Estimated cost to complete the project at the contract date $ 2,000,000

Fixed fee stipulated in the contract 450,000
Cost incurred during 2017 on the project 800,000
Estimated cost at December 31, 2017, to complete the project 1,200,000
Amount billed to Altom under the contract 600,000

Dougherty appropriately accounts for this contract under the percentage-of-completion

method.
(AICPA adapted)

Instructions:
Prepare a schedule to compute the amount of gross profit to be recognized by Dougherty
under the contract for the year ended December 31, 2017.

DOUGHERTY INC.
Computation of Gross Profit to Be Recognized on Uncompleted Contract
For The Year Ended December 31, 2017
P18-9 (LO5,6) Recognition of Profit on Long-Term Contract
Shanahan Construction Company has entered into a contract beginning January 1, 2017, to build
a parking complex. It is estimated that the complex will take 3 years to construct. Additional
information follows.

Estimated cost of complex $ 600,000

Amount to be billed to the purchasing company 900,000

The following data pertain to the construction period.

2017 2018 2019

Costs to date $ 270,000 $ 450,000 $ 610,000
Estimated costs to complete 330,000 150,000 -
Progress billings to date 270,000 550,000 900,000
Cash collected to date 240,000 500,000 900,000

Instructions:
(a) Using the percentage-of-completion method, compute the estimated gross profit to be
recognized during each year of the construction period.

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 gross Profit 300,000 300,000 290,000

Calculation of gross profit to be recognized:

2017:

2018:
 2019:

(b) Using the completed-contract method, compute the estimated gross profit that would be
recognized during each year of the construction period.
P18-11 (LO5,6,7) Long-Term Contract with an Overall Loss
On July 1, 2017, Torvill Construction Company Inc. contracted to build an office building for
Gumbel Corp. On July 1, Torvill estimated that it would take between 2 and 3 years to complete
the building. On December 31, 2019, the building was deemed substantially completed.
Following are accumulated contract costs incurred, estimated costs to complete the contract,
and accumulated billings to Gumbel for 2017, 2018, and 2019.

Total contract price $ 1,900,000

At 12/31/17 At 12/31/18 At 12/31/19

Contract costs incurred to date $ 300,000 $1,200,000 $2,100,000
Estimated costs to complete the contract 1,200,000 800,000 0
Billings to Gumbel 300,000 1,100,000 1,850,000

Instructions:
(a) Using the percentage-of-completion method, prepare schedules to compute the profit or
loss to be recognized as a result of this contract for the years ended December 31, 2017,
2018, and 2019. (Ignore income taxes.)

2017 Cost to date 300,000

Estimated costs to complete 1,200,000
Estimated total costs 1,500,000

Percet complete 0.2

Revenue recognized 380,000

Costs incurred (300,000)
Profit recognized in 2017 80,000

2018 Cost to date 1,200,000

Estimated costs to complete 800,000
Estimated total costs 2,000,000

Percet complete 0.6

Revenue recognized 1,140,000

Costs incurred -1,100,000
Profit recognized in 2018 40,000
 2019 Cost to date 2,100,000
Estimated costs to complete -
Estimated total costs 2,100,000

Percet complete 100%

Revenue recognized 2,100,000

Costs incurred 1,850,000
Profit recognized in 2019 250,000

(b) Using the completed-contract method, prepare schedules to compute the profit or loss to
be recognized as a result of this contract for the years ended December 31, 2017, 2018,
and 2019. (Ignore income taxes.)

2017 0

2018 0

2019 370,000