Chiefs Construction Company has contracted to build an office building. The construction is scheduled to begin on January 1, 2020, and the estimated time of completion is July 1, 2023. The building cost is estimated to be $20,000,000 and will be billed at $24,000,000. The following data relate to the construction period:
| 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|
| Cost to date | 5,500,000 | 10,000,000 | 13,500,000 | 20,000,000 |
| Estimated cost to complete | 14,500,000 | 10,000,000 | 6,500,000 | -0- |
| Progress billings to date | 3,000,000 | 9,000,000 | 14,000,000 | 24,000,000 |
| Cash collected to date | 3,000,000 | 7,500,000 | 12,500,000 | 24,000,000 |
1) Compute the estimated gross profit for 2020, 2021, 2022, and 2023 assuming that the percentage-of-completion method is used.
2) Prepare the necessary journal entries for Chiefs Company for the years 2022 and 2023 under percentage-of-completion method.
3) Prepare the necessary journal entries for Chiefs Company for the years 2022 and 2023 under completed contract method.
In: Accounting
Dobson Construction specializes in the construction of commercial and industrial buildings. The contractor is experienced in bidding long-term construction projects of this type, with the typical project lasting fifteen to twenty-four months. The contractor uses the percentage-of-completion method of revenue recognition since, given the characteristics of the contractor's business and contracts, it is the most appropriate method. Progress toward completion is measured on a cost-to-cost basis. Dobson began work on a lump-sum contract at the beginning of 2019. As bid, the statistics were as follows: Contract price $4,000,000 Estimated costs $3,000,000 At the end of the first year, the following was the status of the contract: Billings to date $2,250,000 Costs incurred to date 1,200,000 Latest forecast total cost 3,000,000 Instructions
(a) Compute the percentage of completion on the contract at the end of 2019.
(b) Indicate the amount of gross profit that would be reported on this contract at the end of 2019.
(c) Make the journal entry to record the income (loss) for 2019 on Dobson's books.
In: Accounting
Net Present Value Method—Annuity for a Service Company
Amenity Hotels Inc. is considering the construction of a new hotel for $81 million. The expected life of the hotel is 7 years with no residual value. The hotel is expected to earn revenues of $22 million per year. Total expenses, including depreciation, are expected to be $16 million per year. Amenity Hotels’ management has set a minimum acceptable rate of return of 9%.
a. Determine the equal annual net cash flows
from operating the hotel. Enter your answer in million.
Round your answer to two decimal places.
$ million
| Present Value of an Annuity of $1 at Compound Interest | |||||||
| Periods | 8% | 9% | 10% | 11% | 12% | 13% | 14% |
| 1 | 0.92593 | 0.91743 | 0.90909 | 0.90090 | 0.89286 | 0.88496 | 0.87719 |
| 2 | 1.78326 | 1.75911 | 1.73554 | 1.71252 | 1.69005 | 1.66810 | 1.64666 |
| 3 | 2.57710 | 2.53129 | 2.48685 | 2.44371 | 2.40183 | 2.36115 | 2.32163 |
| 4 | 3.31213 | 3.23972 | 3.16987 | 3.10245 | 3.03735 | 2.97447 | 2.91371 |
| 5 | 3.99271 | 3.88965 | 3.79079 | 3.69590 | 3.60478 | 3.51723 | 3.43308 |
| 6 | 4.62288 | 4.48592 | 4.35526 | 4.23054 | 4.11141 | 3.99755 | 3.88867 |
| 7 | 5.20637 | 5.03295 | 4.86842 | 4.71220 | 4.56376 | 4.42261 | 4.28830 |
| 8 | 5.74664 | 5.53482 | 5.33493 | 5.14612 | 4.96764 | 4.79677 | 4.63886 |
| 9 | 6.24689 | 5.99525 | 5.75902 | 5.53705 | 5.32825 | 5.13166 | 4.94637 |
| 10 | 6.71008 | 6.41766 | 6.14457 | 5.88923 | 5.65022 | 5.42624 | 5.21612 |
b. Compute the net present value of the new
hotel, using the present value of an annuity of $1 table above.
Round to the nearest million dollars. If required,
use the minus sign to indicate a negative net present value.
Net present value of hotel project: $ million
c. Does your analysis support construction of
the new hotel?
Yes/No , because the net present value is positive/negative .
In: Accounting
A large city hotel serves two types of customers/guests: general visitors (gv), and convention attendees (ca). Their respective daily demand functions are: For the general visitors segment Q gv = 1,400 – 10 Pgv, and for the convention attendees segment Qca = 2,400 -20 Pca. The marginal cost for serving an additional guest is the same, regardless of the type of customer, and the hotel’s daily Total Cost function is: T.C. = 18,200 + 30 Q.
In: Economics
Suppose you have assumed the role as the construction manager (CM) in one of the City of Kelowna’s water park projects. The previous CM resigned the City. The project is 2 months behind the schedule. Over 75% of the allocated budget has been spent and only 55% (based on number of installed/constructed items) of the construction has been completed.
In: Operations Management
When we formed the construction contract, do we need the margin
percentage for the percentage-of-completion method? I am trying to
calculate the revenue. I have information about the estimated cost,
cost incurred per year, the finalized cost, project years, and
margin. However, I am not sure it is necessary. It said that the
worker wants to add a margin of % on its cost estimate.
Can anyone help me to use an example to explain to me?
In: Accounting
Essan Construction Inc., which has a calendar year end, has entered into a non-cancellable fixed price contract for $2.8 million beginning September 1, 2020, to build a road for a municipality. It has been estimated that the road construction will be complete by June 2022. The following data pertain to the construction period.
| 2020 | 2021 | 2022 | |
| Cost to date | $800,000 | $1,800,000 | $2,3500,000 |
| Estimated costs to complete | $1,700,000 | $600,000 | 0 |
| Progress billings to date (non-refundable) | $850,000 | $2,300,000 | $2,800,000 |
| Cash collected to date | $700,000 | $2,200,000 | $2,800,00 |
(A) Using the percentage-of-completion method, calculate the estimated gross profit that would be recognized during each year of the construction period. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
| 2020 | 2021 | 2022 | |
| Gross profit / (loss) | $ | $ | $ |
(B) Using the percentage-of-completion method, prepare the journal entries for 2020 and 2021. (Use Materials, Cash, Payables for costs incurred to date.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
For Year 2020:
| Account Titles and Explanations | Debit | Credit |
| (To record cost of construction) | ||
| (To record progress billings) | ||
| (To record collections) | ||
| (To record revenues) | ||
| (To record construction expenses) |
For Year 2021:
| Account Titles and Explanation | Debit | Credit |
| (To record cost of construction) | ||
| (To record progress billings) | ||
| (To record collections) | ||
| (To record revenues) | ||
| (To record construction expenses) |
(C) Using the percentage-of-completion method, what is the balance in the Contract Asset/Liability account at December 31, 2020 and 2021? (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
| December 31,2020 | December 31, 2021 | ||
|
$ | $ |
(D)
In: Accounting
21. According to the sticky-wage theory of the short-run aggregate supply curve, if workers and firms expected prices to rise by 3 percent, but instead prices rise by 1 percent, then a. employment and production rise. b. employment rises and production falls. c. employment falls and production rises. d. employment and production fall. 22. The aggregate demand and aggregate supply model implies monetary neutrality a. only in the short run. b. only in the long run. c. in both the short run and the long run. d. in neither the short run nor long run. 23. In the early 1930s in the United States, there was a a. large increase in output. In the early 1940s there was also a large increase in output. b. large increase in output. In the early 1940s there was a large decrease in output. c. large decrease in output. In the early 1940s there was a large increase in output. d. large decrease in output. In the early 1940s there was also a large decrease in output. 24. If households spend $90 of every $100 of after tax income, then the government purchases multiplier is a. 3 b. 5 c. 9 d. 10
In: Economics
Evans:
Evans Enterprises has bought a prime parcel of beachfront property and plans to build a luxury hotel. After meeting with the architectural team, the Evans family has drawn up some information to make preliminary plans for construction. Excluding the suites, which are not part of this decision, the hotel will have four kinds of rooms: beachfront non-smoking, beachfront smoking, lagoon view non-smoking, and lagoon view smoking. To decide how many of each of the four kinds of rooms to plan for, the Evans family will consider the following information.
After adjusting for expected occupancy, the average nightly revenue for a beachfront non-smoking room is $175. The average nightly revenue for a lagoon view non-smoking room is $130. Smokers will be charged an extra $15.
Construction costs vary. The cost estimate for a lagoon view room is $12,000 and for a beachfront room is $15,000. Air purifying systems and additional smoke detectors and sprinklers ad $3000 to the cost of any smoking room. Evans Enterprises has raised $6.3 million in construction guarantees for this portion of the building.
There will be at least 120 but no more than 180 beachfront rooms.
Design considerations require that the number of lagoon view rooms be at least 1.5 times the number of beachfront rooms, and no more than 2.5 times that number.
Industry trends recommend that the number of smoking rooms be no more than 50% of the number of non-smoking rooms.
There should be at least 45 rooms of each kind.
What is the optimal solution?
What is the optimal value of the objective function?
For what values of the objective coefficient will the above solution be valid? Include ranges for all decision variables.
If the budget increases to 7 million what is the change in the objective function? What is the shadow price for budget?
In: Operations Management
You have recently been promoted to General Manager at Creekview Lodge, a 50 room hotel in Gatlinburg, Tennessee. You started working at the lodge in high school in the restaurant and after college, returned to Creekview as one of the assistant managers before being promoted to hotel manager. Recently, a 200-room hotel opened not far from Creekview Lodge, and although Creekview still maintains near 100% capacity there has been quite a bit of turnover. More than ten employees left to work for the larger hotel which boasted higher pay and better health insurance.
You were informed this morning by the front desk team that the latest customer survey results show a drop in the satisfaction rating for guest room cleanliness. The current report indicates that 73% of guests responded “completely satisfied”, 12% responded “satisfied”, 10% responded “neither satisfied nor unsatisfied”, and 5% responded “unsatisfied.” The housekeeping staff lost four employees to the new hotel, so although disappointed, you aren’t surprised by this news. Still, you could not remember a time that the hotel had received such a low satisfaction rating.
As manager of Creekview Lodge, what is your next step in addressing the problem?
A)Take immediate action and require that all rooms be inspected by the hotel manager (you) or an assistant manager before being made available to customers
D)Review the standards of performance and compare to current performance
In: Operations Management