Question

1. Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,800,000. The project was begun in 2017 and completed in 2018. Cost and other data are presented below:

                                                                          2017                           2018

Costs incurred during the year                    $ 450,000                  $1,100,000

Estimated costs to complete                       1,050,000                                  0

Billings during the year                                 400,000                    1,400,000

Cash collections during the year                    300,000                    1,500,000

Assume that Beavis recognizes revenue on this contract over time according to percentage of completion.

Required:

Prepare all journal entries to record costs, billings, collections, and profit recognition for 2017 and 2018.

2. Answer each of the following unrelated questions.

1) Bill wants to give Maria a $500,000 gift in seven years. If money is worth 6% compounded semiannually, what is Maria's gift worth today?

2) At the end of each quarter, Patti deposits $500 into an account that pays 12% interest compounded quarterly. How much will Patti have in the account in three years?

*In the following questions, the interest is compounded annually.

3) Spielberg Inc. signed a $200,000 noninterest-bearing note due in five years from a production company eager to do business. Comparable borrowings have carried an 11% interest rate. What is the value of this debt at its inception?

4) Mustard's Inc. sold the rights to use one of its patented processes that will result in cash receipts of $2,500 at the end of each of the next four years and a lump sum receipt of $4,000 at the end of the fifth year. The total present value of these payments if interest is at 9% is:

5) Claudine Corporation will deposit $5,000 into a money market sinking fund at the end of each year for the next five years. How much will accumulate by the end of the fifth and final payment if the sinking fund earns 9% interest?

6) Fenland Co. plans to retire $100 million in bonds in five years, so it wishes to fund a savings account at the beginning of each year during that period for which it expects to earn 8% annually. At the end of the five years, there will be enough money in the account to pay off the bonds. What amount does Fenland need to invest each year?

7) Polo Publishers purchased a multi-color offset press with terms of $50,000 to be paid at the date of purchase, and a noninterest-bearing note requiring payment of $20,000 at the end of each year for five years. The interest rate implicit in the purchase contract is 11%. Polo would record the asset at:

Answer 1