US GAAP – completed contract methodIFRS – zero-profit methodEXTRA CREDIT – REVENUE RECOGNITION – SOLUTION Installment sale journal entries – see table next page Gross profit percentage = 73-1/3% Debit Credit 1/2/2009 Cash 500,000 Notes Receivable 2,500,000 Acc'd Depreciation 162,500 Land 150,000 Building 812,500 Deferred gross profit on installment sale of land 2,200,000 Recognize sale of building using installment method because full accrual accounting criteria were not met 12/28/2009 Cash 310,147 Interest revenue 225,000 Notes receivable 85,147 Record receipt of first payment 12/31/2009 Deferred gross profit {(500,000 + 85,147)*73.3%} 429,108 Gain on installment sale of land 429,108 Recognize deferred gross profit for year 12/31/2010 Cash 310,147 Interest Revenue 217,337 Note receivable 92,810 Record receipt of second payment 12/31/2010 Deferred gross profit (73.3% * 92,810) 68,061 Gain on installment sale of land 68,061 Recognize deferred gross profit for year 4,279,963 4,279,963Installment Sales Extra Credit Homework - S11Selling price 3,000,000$ Downpayment 500,000$ Note receivable 2,500,000$ Interest rate 9%Length of mortgage (annual) 15Annual payment $310,147.21Cost Carrying value of assets:150,000$ Land 150,000$ Selling price 3,000,000$ 812,500$ Building 650,000$ Basis (800,000)$ 962,500$ 800,000$ Gross profit 2,200,000$ GP %73.33%AMORTIZATION TABLE 9.00% GROSS BALANCEYEAR PAYMENT INTEREST PRINCIPAL BALANCE PROFIT DEFERREDREVENUE RECOGNIZED PROFIT3,000,000$ 2,200,000$ DWNPYMT 500,000$ $500,000 $2,500,000 $366,667 $1,833,3332009 $310,147 $225,000 $85,147 $2,414,853 $62,441 $1,770,8922010 $310,147 $217,337 $92,810 $2,322,043 $68,061 $1,702,8312011 $310,147 $208,984 $101,163 $2,220,880 $74,186 $1,628,6452012 $310,147 $199,879 $110,268 $2,110,612 $80,863 $1,547,7822013 $310,147 $189,955 $120,192 $1,990,420 $88,141 $1,459,6412014 $310,147 $179,138 $131,009 $1,859,411 $96,073 $1,363,5682015 $310,147 $167,347 $142,800 $1,716,611 $104,720 $1,258,8482016 $310,147 $154,495 $155,652 $1,560,959 $114,145 $1,144,7032017 $310,147 $140,486 $169,661 $1,391,298 $124,418 $1,020,2852018 $310,147 $125,217 $184,930 $1,206,368 $135,615 $884,6702019 $310,147 $108,573 $201,574 $1,004,794 $147,821 $736,8492020 $310,147 $90,431 $219,716 $785,078 $161,125 $575,7242021 $310,147 $70,657 $239,490 $545,588 $175,626 $400,0982022 $310,147 $49,103 $261,044 $284,544 $191,432 $208,6662023 $310,147 $25,609 $284,544 $0 $208,666 $05,152,205$ $2,152,211 $3,000,000 $2,200,000Unit 17 Exercise 3. Blythe Construction, Inc. secured a $2,000,000 fixed-price contract to construct a new gymnasium for the local high school. The company has incurred $500,000 of costs, and estimates an additional $1,200,000 to complete the project. The company has billed the school district for $800,000, but no payments have been received. a. How will this project be reported on the company’s financial statements for US GAAP? For IFRS? b. If Blythe Construction could not reasonably estimate the cost of completion, and therefore the outcome of the project, how would the contract be reflected on the financial statements for US GAAP? For IFRS? Note: journal entries would also be an acceptable way to display this information if that is all they do because of the way I worked the example in class this semester. 3 a. US GAAP & IFRS both use percentage of completion 500,000 costs to date /1,700,000 total estimated cost = 29.41% complete 29.41% complete * 2,000,000 total revenue = $588,235 revenue recognized Income statement: Revenue $588,235 Expenses 500,000 Gross profit 88,235 Balance Sheet Current assets Accounts Receivable $800,000 Current liabilities: Billings in Excess of cost and accumulated profit $211,765 {800,000 billings - $588,235 in Construction in Progress} 3 b. Assuming no estimates could be made, IFRS and US GAAP would be different: US GAAP – completed contract method Income statement* *no income statement accounts affected until completion of contract Balance Sheet Current assets Accounts Receivable $800,000 Current liabilities: Billings in Excess of cost - $300,000 [800,000 billings - 500,000 construction in progress] IFRS – zero-profit method Income statement: Revenue $500,000 Expenses 500,000 Gross profit 0 Balance Sheet Current assets Accounts Receivable $800,000 Current liabilities: Billings in Excess of cost
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