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.

Required:

1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years. (Do not round intermediate calculations. Loss amounts should be indicated with a minus sign.)

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).

4. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)

5. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)

QUESTION 1

Answer the following multiple-choice questions. Indicate your choice by selecting only one option from the four options given for each question answered.

(a) Which one of the following is not considered to be an enhancing qualitative characteristic to ensure the usefulness of information that is already relevant and faithfully represented in terms of The Conceptual Framework for Financial Reporting 2018?

1) Completeness;

2) Comparability;

3) Timeliness;

4) Understandability.

(b) Which one of the following is not an objective of financial statements to provide information of an entity that is useful to a wide range of users when making economic decisions as set out by IAS 1?

1) Statement of financial position;

2) Statement of financial performance;

3) Statement of cash flows;

4) Statement of budget forecasts.

(c) In accordance to IAS 2 the historical cost of inventories does not include:

1) Purchasing costs;

2) Selling expenses;

3) Conversion costs;

4) Other costs incurred in bringing inventories to their present location and condition.

(d) On 1 January 2020, Duma Ltd issued a bond with a nominal value of R500 000 and a coupon rate of 8% (annually in arrears) when the market rate was also 8%. The bond will be redeemed at a 10% premium above nominal value on 31 December 2022. Transaction costs paid by Duma Ltd amounted to R30 000. The effective interest rate is:

1) 8,00%;

2) 10,99%;

3) 13,48%;

4) 10,43%.

(e) Moola Ltd sold goods to a customer for a total consideration of R181 500, payable 24 months after delivery. The customer obtained control of the products on delivery. The cash selling price of the goods amounted to R150 000 and represents the amount that the customer would pay upon delivery instead of over 24 months. Moola Ltd will recognize:

1) Revenue of R181 500 on delivery;

2) Revenue of R181 500 after 24 months;

3) Revenue of R150 000 on delivery and interest income of R31 500 over 24 months;

4) Revenue of R150 000 on delivery and interest income of R31 500 after 24 months.

The biggest challenges throughout the planning process is determining start up costs, determining inventory and determining the location of the store. The start up costs are a big challenge due to there being a number of variables such as how much inventory is smart to start off with, how much to pay in utilities (can easily fluctuate), and how much to pay in advertising the store to customers. Determining inventory is also a challenge because orders must be placed to keep up with inventory and determining a schedule for that is based on revenue, but during the planning process revenue can only be projected and not consistently known. Determining the location of the store is also a challenge, it is an extremely important decision that will make or break the success of the store. Calculating how many customers are nearby, as well as type of income (lower-class, middle-class, upper class, etc.) is also challenging.

The growth potential of my business is tremendous. I view after a few months, for there to be a solid foundation for revenue. The first few months may be tough because the public either doesn’t know about the store, or don’t have a trust built with the store yet. Once I am established, I see my store serving the community with well needed convenience products and establishing a

casual customer base. Once I’m established after a few months, I expect revenue to climb and stabilize. After a few years I expect to be financially in a great position. Some profits can be diverted to upgrades for the store, improving customer experience (maybe experiment with new and diverse products). After a few years, I see myself expanding by buying other Circle K franchises to open or try to buy established stores from owners. This would require saving up a lot of the profit but in the long run it is a great investment in my opinion.

questions

1.This entrepreneur mentioned some big challenges he/she would face when starting this business. Do you agree? Explain your decision

2.Evaluate the growth potential of the business. Would you agree with this entrepreneur’s vision? Why or why not?

Washington County’s Board of Representatives is considering the construction of a longer runway at the county airport. Currently, the airport can handle only private aircraft and small commuter jets. A new, long runway would enable the airport to handle the midsize jets used on many domestic flights. Data pertinent to the board’s decision appear below.

In addition to the preceding data, two other facts are relevant to the decision. First, a longer runway will require a new snowplow, which will cost $170,000. The old snowplow could be sold now for $17,000. The new, larger plow will cost $15,000 more in annual operating costs. Second, the County Board of Representatives believes that the proposed long runway, and the major jet service it will bring to the county, will increase economic activity in the community. The board projects that the increased economic activity will result in $76,000 per year in additional tax revenue for the county.

In analyzing the runway proposal, the board has decided to use a 10-year time horizon. The county’s hurdle rate for capital projects is 12 percent.

In analyzing the runway proposal, the board has decided to use a 10-year time horizon. The county’s hurdle rate for capital projects is 12 percent. The County Board of Representatives believes that if the county conducts a promotional effort costing $27,000 per year, the proposed long runway will result in substantially greater economic development than was projected originally. However, the board is uncertain about the actual increase in county tax revenue that will result.

Required:
Suppose the board builds the long runway and conducts the promotional campaign. What would the increase in the county’s annual tax revenue need to be in order for the proposed runway’s internal rate of return to equal the county’s hurdle rate of 12 percent? (Round your intermediate calculations and final answer to the nearest whole dollar.)

4 . Individual Problems 22-1

Suppose that a paper mill “feeds” a downstream box mill. For the downstream mill, the marginal profitability of producing boxes declines with volume. For example, the first unit of boxes increases earnings by $30, the second by $27, the third by $24, and so on, until the tenth unit increases profit by just $3.

The cost the upstream mill incurs for producing enough paper (one “unit” of paper) to make one unit of boxes is $9.50.

Assume the two mills operate as separate profit centers, and the paper mill sets the price of paper. It follows that the marginal profitability of boxes represents the highest price that the box division would be willing to pay the paper division for boxes.. Furthermore, assume that fixed costs are $0 for the paper mill.

The following table summarizes the quantity, total revenue, and marginal costs from the perspective of the paper mill for selling paper to the box mill at various prices.

In the following table, fill in the marginal revenue, total cost, and total profit for the paper mill when selling paper to the box mill at each given price.

If the paper mill sets the price of paper to sell to the box mill, it will set a price of (_____ ) and sell (______) units of paper to the box mill. Profits will be(_____)

for the paper mill. Companywide  profits will be(______). (Hint: Recall that the prices in the table represent the marginal profitability of each unit of paper, or box, to the box mill.)

Suppose the paper mill is forced to transfer paper to the box mill at marginal cost ($9.50).

In this case, the box mill will demand(_____) units of paper. This leads to companywide profits of (_____).

.

South Shore Construction builds permanent docks and seawalls along the southern shore of Long Island, New York. Although the firm has been in business only five years, revenue has increased from $315,000 in the first year of operation to $1,075,000 in the most recent year. The following data show the quarterly sales revenue in thousands of dollars.

a. Which of the following is the correct time series plot?

What type of pattern exists in the data?

There appears to be a seasonal pattern in the data and perhaps a

b. Use the following dummy variables to develop an estimated regression equation to account for any seasonal effects in the data: Qtr1=1 if Quarter 1, 0 otherwise; Qtr2=1 if Quarter 2, 0 otherwise; Qtr3=1 if Quarter 3, 0 otherwise. Round your answers to whole number.

Revenue= _ + _ Qtr1 + _ Qtr2 + _ Qtr3

Compute the quarterly forecasts for next year.

c. Let Period =1 to refer to the observation in quarter 1 of year 1; Period=2 to refer to the observation in quarter 2 of year 1; . . . and Period=20 to refer to the observation in quarter 4 of year . Using the dummy variables defined in part (b) and Period, develop an estimated regression equation to account for seasonal effects and any linear trend in the time series. Based upon the seasonal effects in the data and linear trend, compute the quarterly forecasts for next year. Round your answers to whole number. Enter negative value as negative number.

The regression equation is:

Revenue = _ + _ Qtr1 + _ Qtr2 + _ Qtr3 + _ Period

The quarterly forecasts for next year are as follows:

Exercise 21-16 Presented below are four independent situations. (Round answers to 0 decimal places, e.g. 125. If answer is 0, please enter 0. Do not leave any fields blank.) (a) On December 31, 2017, Sandhill Inc. sold computer equipment to Daniell Co. and immediately leased it back for 10 years. The sales price of the equipment was $515,200, its carrying amount is $401,900, and its estimated remaining economic life is 12 years. Determine the amount of deferred revenue to be reported from the sale of the computer equipment on December 31, 2017. The amount of deferred revenue to be reported $

(b) On December 31, 2017, Teal Co. sold a machine to Cross Co. and simultaneously leased it back for one year. The sales price of the machine was $477,700, the carrying amount is $420,300, and it had an estimated remaining useful life of 14 years. The present value of the rental payments for the one year is $35,000. At December 31, 2017, how much should Teal report as deferred revenue from the sale of the machine? The amount of deferred revenue to be reported $

(c) On January 1, 2017, Flint Corp. sold an airplane with an estimated useful life of 10 years. At the same time, Flint leased back the plane for 10 years. The sales price of the airplane was $498,300, the carrying amount $375,100, and the annual rental $73,904. Flint Corp. intends to depreciate the leased asset using the sum-of-the-years’-digits depreciation method. How much gain on the sale should be reported at the end of 2017 in the financial statements? The gain on the sale should be reported $

(d) On January 1, 2017, Buffalo Co. sold equipment with an estimated useful life of 5 years. At the same time, Buffalo leased back the equipment for 2 years under a lease classified as an operating lease. The sales price (fair value) of the equipment was $214,700, the carrying amount is $303,000, the monthly rental under the lease is $6,100, and the present value of the rental payments is $116,494. For the year ended December 31, 2017, determine which items would be reported on its income statement for the sale-leaseback transaction. $ $