Andy wants Ben to build Andy a pool, a tennis court, and a basketball court for Andy's employer which is a small hotel. Ben tells Andy that he can do the pool for $ 10,000, a tennis court for $ 7,000, and a basketball court for $ 3,000 if this is done individually. Andy must have the pool for no more than $ 12,000. He would like the basketball court this year or next. He would like the tennis court for no more than $ 8,000. His entire budget for this year for any of these things is no more than $ 17,000 but he would really prefer $ 15,000. Andy must decide this within 10 days or lose his job. Andy knows that Ben has no time pressure at all. Andy also knows that Ben, however, does not like to waste time and likes to do multiple jobs at once if he can in order to be more efficient. Andy also knows that Ben has many other jobs he can do right now but that he prefers to do jobs closest to his office more than farther jobs because they are easier to get to etc. Andy's hotel is only a mile from Ben's office. Andy would like someone to improve the entrance to his hotel, the back area of his hotel, and the parking lot of his hotel, but he really does not care about that right now as he can do that in 3 or 4 years and has no rush for that. Andy also knows that Ben's construction business is always looking for more cement trucks and flatbed trucks and Andy happens to have a cement truck and two flatbed trucks he does not need anymore.

a. What 2 or 3 negotiation strategies would you advise Andy to use in negotiating with Ben and why?

b. In general, what 2 strategies below would you say most often ruins negotiations between people and why?

On June 15, 2021, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $330 million. The expected completion date is April 1, 2023, just in time for the 2023 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

Required:
1. Compute the revenue and gross profit will Sanderson report in its 2021, 2022, and 2023 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion.
2. Compute the revenue and gross profit will Sanderson report in its 2021, 2022, and 2023 income statements related to this contract assuming this project does not qualify for revenue recognition over time.
3. Suppose the estimated costs to complete at the end of 2022 are $160 million instead of $40 million. Compute the amount of revenue and gross profit or loss to be recognized in 2022 assuming Sanderson recognizes revenue over time according to percentage of completion.

Compute the revenue and gross profit will Sanderson report in its 2021, 2022, and 2023 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion. (Enter your answers in millions. Loss amounts should be indicated with a minus sign. Use percentages as calculated and rounded in the table below to arrive at your final answer.)

Central Adventures

Fatima Hopkins, the CEO of Central Adventures, is having difficulties with all three of her top management level employees. With one manager making questionable decisions, another threatening to leave, and the third likely ‘in the red’, Fatima is hoping there is a simple answer to all her difficulties, and needs some advice from her accountant on how to proceed.

Central Adventures owns and operates three amusement parks in Michigan: Central Funland, Central Waterworld, and Central Treetops. Central Adventures has a decentralized organizational structure, where each park is run as an investment center. Each park manager meets with the CEO at least once annually to review their performance, as measured by their park’s ROI. The park manager then receives a bonus equal to 10% of their base salary for every ROI percentage point above the required rate.

Central Funland is an outdoor theme park, with twelve roller coaster rides and several other attractions. This park has first opened 1965, and most of the rides have been in operation for 20+ years. Attendance at this park has been relatively stable over the past ten years. The park manager of Funland, Janet Lieberman, recently shared with Fatima a proposal to replace one of their older rides with a new roller coaster, a hybrid steel and wood rollercoaster with a 90 degree, 200 foot drop and three inversions. The proposal indicated that the ride would cost $8,000,000 with an estimated life of 20 years. In addition, this new style of coaster would require additional maintenance, costing $125,000 each year. However, it projected that this new attraction would boost attendance, earning the park an additional $1,190,000 per year in revenues. Janet ultimately decided not to invest in this new attraction.

Central Waterworld is an indoor water park, operating year-round. Run by park manager David Copperfield, Waterworld was built in 2016 and has increased attendance by 20% every year since. David recently sent you an email complaining that, based on the current bonus payout schedule, Janet Lieberman’s bonus last year was significantly higher than his. He points to the increasing attendance, and says that his park is being punished for having opened so recently (his park assets are much more recent than the roller coasters at Funland). He currently has an employment offer from another company at the same pay rate, which he says he will accept if his performance is not appropriately acknowledged.

Central Treetops includes a high ropes course and has a series of ziplines that criss-cross over the Chippewa River. For many years, it was a popular venue for corporate team-building activities, so it is equipped with a main indoor facility with cafeteria and overnight guest rooms. This park has lost popularity in recent years, and has been ‘in the red’ for the past two years. If the park is not profitable this year, you will need to decide whether to close it - permanently. Central Adventures has a $86,000 mortgage payment on the land and buildings for Treetops, which would still need to be paid if the park is closed. Incidentally, you recently had a conversation with the regional head of the YMCA, who would like to open a summer camp in the central Michigan region. If you decided to close Treetops, you are fairly certain that you could lease that land to the YMCA for $250,000 annually.

A partial report of this year’s financial results for Central Adventures shows the following:

In addition to the information above, there are $2,542,920 in corporate costs, which are currently allocated evenly between the three parks. These costs are primarily due to employee benefits costs, which are billed at the corporate level. If the Treetops park is closed, the allocated corporate costs would decrease by $12,000. Central Adventures has a required rate of return of 12 percent (set at the company’s weighted-average cost of capital) and are subject to 18% income taxes.

Fatima needs to see this year’s performance results before she can make any decisions. Is David’s complaint about the performance evaluation metrics valid? Is that also affecting management decisions in the form of Janet’s rejection of the proposed new rollercoaster? And is the company better off without Treetops? She sets off to the company accountant’s office to help get some answers.

a. Create a multilevel income statement for Central Adventures.

b.   Calculate the current annual ROI, residual income and EVA for the three parks.

c. Did Janet Lieberman (the Funland park manager) make the ‘right’ decision (i.e., was it in Central Adventure’s overall best interest for Funland to reject the new rollercoaster)? Explain your answer. Provide the appropriate financial analysis(es) to support your conclusion.

d.   Is David Copperfield’s (the Waterworld park manager) complaint valid? Or would a different performance metric tell the same story?

e. Provide a recommendation on whether to close Treetops. Provide the appropriate financial analysis to support your conclusion.

f.    Provide a recommendation on a different allocation base for corporate overhead.

--------Fatima Hopkins, the CEO of Central Adventures, is having difficulties with all three of her top management level employees. With one manager making questionable decisions, another threatening to leave, and the third likely ‘in the red’, Fatima is hoping there is a simple answer to all her difficulties, and needs some advice from her accountant on how to proceed.

Central Adventures owns and operates three amusement parks in Michigan: Central Funland, Central Waterworld, and Central Treetops. Central Adventures has a decentralized organizational structure, where each park is run as an investment center. Each park manager meets with the CEO at least once annually to review their performance, as measured by their park’s ROI. The park manager then receives a bonus equal to 10% of their base salary for every ROI percentage point above the required rate.

Central Funland is an outdoor theme park, with twelve roller coaster rides and several other attractions. This park has first opened 1965, and most of the rides have been in operation for 20+ years. Attendance at this park has been relatively stable over the past ten years. The park manager of Funland, Janet Lieberman, recently shared with Fatima a proposal to replace one of their older rides with a new roller coaster, a hybrid steel and wood rollercoaster with a 90 degree, 200 foot drop and three inversions. The proposal indicated that the ride would cost $8,000,000 with an estimated life of 20 years. In addition, this new style of coaster would require additional maintenance, costing $125,000 each year. However, it projected that this new attraction would boost attendance, earning the park an additional $1,190,000 per year in revenues. Janet ultimately decided not to invest in this new attraction.

Central Waterworld is an indoor water park, operating year-round. Run by park manager David Copperfield, Waterworld was built in 2016 and has increased attendance by 20% every year since. David recently sent you an email complaining that, based on the current bonus payout schedule, Janet Lieberman’s bonus last year was significantly higher than his. He points to the increasing attendance, and says that his park is being punished for having opened so recently (his park assets are much more recent than the roller coasters at Funland). He currently has an employment offer from another company at the same pay rate, which he says he will accept if his performance is not appropriately acknowledged.

Central Treetops includes a high ropes course and has a series of ziplines that criss-cross over the Chippewa River. For many years, it was a popular venue for corporate team-building activities, so it is equipped with a main indoor facility with cafeteria and overnight guest rooms. This park has lost popularity in recent years, and has been ‘in the red’ for the past two years. If the park is not profitable this year, you will need to decide whether to close it - permanently. Central Adventures has a $86,000 mortgage payment on the land and buildings for Treetops, which would still need to be paid if the park is closed. Incidentally, you recently had a conversation with the regional head of the YMCA, who would like to open a summer camp in the central Michigan region. If you decided to close Treetops, you are fairly certain that you could lease that land to the YMCA for $250,000 annually.

A partial report of this year’s financial results for Central Adventures shows the following:

In addition to the information above, there are $2,542,920 in corporate costs, which are currently allocated evenly between the three parks. These costs are primarily due to employee benefits costs, which are billed at the corporate level. If the Treetops park is closed, the allocated corporate costs would decrease by $12,000. Central Adventures has a required rate of return of 12 percent (set at the company’s weighted-average cost of capital) and are subject to 18% income taxes.  

Fatima needs to see this year’s performance results before she can make any decisions. Is David’s complaint about the performance evaluation metrics valid? Is that also affecting management decisions in the form of Janet’s rejection of the proposed new rollercoaster? And is the company better off without Treetops? She sets off to the company accountant’s office to help get some answers.

Required:

a.   Create a multilevel income statement for Central Adventures.

b.   Calculate the current annual ROI, residual income and EVA for the three parks.

c.   Did Janet Lieberman (the Funland park manager) make the ‘right’ decision (i.e., was it in Central Adventure’s overall best interest for Funland to reject the new rollercoaster)? Explain your answer. Provide the appropriate financial analysis(es) to support your conclusion.

d.   Is David Copperfield’s (the Waterworld park manager) complaint valid? Or would a different performance metric tell the same story?

e.   Provide a recommendation on whether to close Treetops. Provide the appropriate financial analysis to support your conclusion.

f.    Provide a recommendation on a different allocation base for corporate overhead.  

The meridian construction company based in College Station, TX. is currently working on the Wellborn Middle School Renovation Project. The company uses the Percentage of Completion (POC) method as the company’s accounting method. The president wants to get help from you to determine how much has been overbilled or underbilled on this project. Use the following information.

Project name: Wellborn Middle School Renovation

Contract Amount: $560,000

Total estimated cost at completion: $ 475,000

Actual costs to date: $321,000

Total billed to date: $350,000

In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

Westgate recognizes revenue over time according to percentage of completion.

2-a. In the journal below, complete the necessary journal entries for the year 2018 (credit "Various accounts" for construction costs incurred).
2-b. In the journal below, complete the necessary journal entries for the year 2019 (credit "Various accounts" for construction costs incurred).
2-c. In the journal below, complete the necessary journal entries for the year 2020 (credit "Various accounts" for construction costs incurred).

Complete this question by entering your answers in the tabs below.

• Req 2A
• Req 2B
• Req 2C

In the journal below, complete the necessary journal entries for the year 2018 (credit "Various accounts" for construction costs incurred). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

In the journal below, complete the necessary journal entries for the year 2019 (credit "Various accounts" for construction costs incurred).(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

In the journal below, complete the necessary journal entries for the year 2020 (credit "Various accounts" for construction costs incurred). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Raider Red Construction entered into a contract to build a commercial building for $3,600,000. Raider Red Construction uses the percentage-of-completion method for recognizing revenue on the project. Construction began in September of 2018 and the building was completed in June of 2020. The company provided the following additional information on the project.

Instructions:

(1.) Prepare the journal entries for the balance sheet in each year of the project.

Rajbir Construction Co. contracted to build a bridge for $10,000,000. Construction began in 2018 and was completed in 2019. Data relating to the construction are: 2018 2019 Costs incurred during the year $3,300,000 $2,750,000 Estimated costs to complete 2,700,000 — Raj uses the percentage-of-completion method. Instructions (a) How much revenue should be reported for 2018? Show your computation. (b) Make the entry to record progress billings of $4,100,000 during 2018. (c) Make the entry to record the revenue and gross profit for 2018. (d) How much gross profit should be reported for 2019? Show your computation.

Chapter 18

Howard Construction Co. contracted to build a bridge for $3,000,000. Construction began in 2012 and was completed in 2013. Data relating to the construction are:

                                                                                                 2012              2013

            Costs incurred                                                     $990,000       $825,000

            Estimated costs to complete                                810,000                —

Howard uses the percentage-of-completion method.

Instructions:

        (a)           How much revenue should be reported for 2012?

        (b)          Make the entry to record progress billings of $1,000,000 during 2012.

        (c)            Make the entry to record the revenue and gross profit for 2012.

        (d)          How much gross profit should be reported for 2013?

        (e) Show the Balance Sheet Presentation for 2012.