<p>Exercise 4-1</p><p>Requirement 1 2000 2001 Contract price $2,000,000 $2,000,000 Actual costs to date 300,000 1,875,000 Estimated costs to complete 1,200,000 - 0 - Total estimated costs 1,500,000 1,875,000 Estimated gross profit $ 500,000 $ 125,000</p><p>Gross profit recognition: 2000: $ 300,000 = 20% x $500,000 = $100,000 $1,500,000</p><p>2001: $125,000 - $100,000 = $25,000</p><p>Requirement 2 2000 $ - 0 - 2001 $125,000</p><p>Requirement 3</p><p>Balance Sheet At December 31, 2000 Current assets: Accounts receivable $ 110,000 Construction in progress $400,000* Less: Billings (360,000) Costs and profit in excess of billings 40,000</p><p>* Costs ($300,000) + profits ($100,000) Exercise 4-1 (concluded)</p><p>Requirement 4</p><p>Balance Sheet At December 31, 2000 Current assets: Accounts receivable $ 110,000</p><p>Current liabilities: Billings ($360,000) in excess of costs ($300,000) $ 60,000 Exercise 4-4 Situation 1 - Percentage-of-Completion</p><p>2000 2001 2002 Contract price $5,000,000 $5,000,000 $5,000,000 Actual costs to date 1,500,000 3,600,000 4,500,000 Estimated costs to complete 3,000,000 900,000 - 0 - Total estimated costs 4,500,000 4,500,000 4,500,000 Estimated gross profit (loss) $ 500,000 $ 500,000 $ 500,000</p><p>Gross profit (loss) recognized:</p><p>2000: $1,500,000 = 33.3333% x $500,000 = $166,667 $4,500,000</p><p>2001: $3,600,000 = 80.0% x $500,000 = $400,000 - 166,667 = $233,333 $4,500,000</p><p>2002: $500,000 - 400,000 = $100,000</p><p>Situation 1 - Completed Contract</p><p>Year Gross profit recognized 2000 - 0 - 2001 - 0 - 2002 $500,000 Total gross profit $500,000 Exercise 4-4 (continued)</p><p>Situation 2 - Percentage-of-Completion</p><p>2000 2001 2002 Contract price $5,000,000 $5,000,000 $5,000,000 Actual costs to date 1,500,000 2,400,000 4,800,000 Estimated costs to complete 3,000,000 2,400,000 - 0 - Total estimated costs 4,500,000 4,800,000 4,800,000 Estimated gross profit (loss) $ 500,000 $ 200,000 $ 200,000</p><p>Gross profit (loss) recognized:</p><p>2000: $1,500,000 = 33.3333% x $500,000 = $166,667 $4,500,000</p><p>2001: $2,400,000 = 50.0% x $200,000 = $100,000 - 166,667 = $(66,667) $4,800,000</p><p>2002: $200,000 - 100,000 = $100,000</p><p>Situation 2 - Completed Contract</p><p>Year Gross profit recognized 2000 - 0 - 2001 - 0 - 2002 $200,000 Total gross profit $200,000 Exercise 4-4 (continued)</p><p>Situation 3 - Percentage-of-Completion</p><p>2000 2001 2002 Contract price $5,000,000 $5,000,000 $5,000,000 Actual costs to date 1,500,000 3,600,000 5,200,000 Estimated costs to complete 3,000,000 1,500,000 - 0 - Total estimated costs 4,500,000 5,100,000 5,200,000 Estimated gross profit (loss) $ 500,000 $ (100,000 ) $ (200,000 )</p><p>Gross profit (loss) recognized:</p><p>2000: $1,500,000 = 33.3333% x $500,000 = $166,667 $4,500,000</p><p>2001: $(100,000) - 166,667 = $(266,667)</p><p>2002: $(200,000) - (100,000) = $(100,000)</p><p>Situation 3 - Completed Contract</p><p>Year Gross profit (loss) recognized 2000 - 0 - 2001 $(100,000) 2002 (100,000 ) Total project loss $(200,000 ) Exercise 4-4 (continued)</p><p>Situation 4 - Percentage-of-Completion</p><p>2000 2001 2002 Contract price $5,000,000 $5,000,000 $5,000,000 Actual costs to date 500,000 3,500,000 4,500,000 Estimated costs to complete 3,500,000 875,000 - 0 - Total estimated costs 4,000,000 4,375,000 4,500,000 Estimated gross profit (loss) $1,000,000 $ 625,000 $ 500,000</p><p>Gross profit (loss) recognized:</p><p>2000: $ 500,000 = 12.5% x $1,000,000 = $125,000 $4,000,000</p><p>2001: $3,500,000 = 80.0% x $625,000 = $500,000 - 125,000 = $375,000 $4,375,000</p><p>2002: $500,000 - 500,000 = $ - 0 -</p><p>Situation 4 - Completed Contract</p><p>Year Gross profit recognized 2000 - 0 - 2001 - 0 - 2002 $500,000 Total gross profit $500,000 Exercise 4-4 (continued)</p><p>Situation 5 - Percentage-of-Completion</p><p>2000 2001 2002 Contract price $5,000,000 $5,000,000 $5,000,000 Actual costs to date 500,000 3,500,000 4,800,000 Estimated costs to complete 3,500,000 1,500,000 - 0 - Total estimated costs 4,000,000 5,000,000 4,800,000 Estimated gross profit (loss) $1,000,000 $ - 0 - $ 200,000</p><p>Gross profit (loss) recognized:</p><p>2000: $ 500,000 = 12.5% x $1,000,000 = $125,000 $4,000,000</p><p>2001: $ 0 - 125,000 = $(125,000)</p><p>2002: $200,000 - 0 = $200,000</p><p>Situation 5 - Completed Contract</p><p>Year Gross profit recognized 2000 - 0 - 2001 - 0 - 2002 $200,000 Total gross profit $200,000 Exercise 4-4 (concluded)</p><p>Situation 6 - Percentage-of-Completion</p><p>2000 2001 2002 Contract price $5,000,000 $5,000,000 $5,000,000 Actual costs to date 500,000 3,500,000 5,300,000 Estimated costs to complete 4,600,000 1,700,000 - 0 - Total estimated costs 5,100,000 5,200,000 5,300,000 Estimated gross profit (loss) $ (100,000 ) $ (200,000 ) $ (300,000 )</p><p>Gross profit (loss) recognized:</p><p>2000: $(100,000)</p><p>2001: $(200,000) - (100,000) = $(100,000)</p><p>2002: $(300,000) - (200,000) = $(100,000)</p><p>Situation 6 - Completed Contract</p><p>Year Gross profit (loss) recognized 2000 $(100,000) 2001 (100,000) 2002 (100,000) Total project loss $(300,000 ) Exercise 4-9</p><p>Requirement 1</p><p>July 1, 2000 To record installment sale Installment receivables...... 300,000 ...... Sales revenue ...... 300,000</p><p>Cost of goods sold...... 120,000 ...... Inventory ...... 120,000</p><p>To record cash collection from installment sale Cash...... 75,000 ...... Installment receivables ...... 75,000</p><p>July 1, 2001 To record cash collection from installment sale Cash...... 75,000 ...... Installment receivables ...... 75,000 Exercise 4-9 (continued)</p><p>Requirement 2</p><p>July 1, 2000 To record installment sale Installment receivables...... 300,000 ...... Inventory ...... 120,000 ...... Deferred gross profit ...... 180,000</p><p>To record cash collection from installment sale Cash...... 75,000 ...... Installment receivables ...... 75,000</p><p>To recognize gross profit from installment sale Deferred gross profit...... 45,000 ...... Realized gross profit ...... 45,000</p><p>July 1, 2001 To record cash collection from installment sale Cash...... 75,000 ...... Installment receivables ...... 75,000</p><p>To recognize gross profit from installment sale Deferred gross profit...... 45,000 ...... Realized gross profit ...... 45,000 Exercise 4-9 (concluded)</p><p>Requirement 3</p><p>July 1, 2000 To record installment sale Installment receivables...... 300,000 ...... Inventory ...... 120,000 ...... Deferred gross profit ...... 180,000</p><p>To record cash collection from installment sale Cash...... 75,000 ...... Installment receivables ...... 75,000</p><p>July 1, 2001 To record cash collection from installment sale Cash...... 75,000 ...... Installment receivables ...... 75,000</p><p>To recognize gross profit from installment sale Deferred gross profit...... 30,000 ...... Realized gross profit ...... 30,000</p><p>Problem 4-2</p><p>Requirement 1 2000 2001 2002 Contract price $10,000,000 $10,000,000 $10,000,000 Actual costs to date 2,400,000 6,000,000 8,200,000 Estimated costs to complete 5,600,000 2,000,000 - 0 - Total estimated costs 8,000,000 8,000,000 8,200,000 Estimated gross profit (loss) $ 2,000,000 $ 2,000,000 $ 1,800,000 Gross profit (loss) recognition: 2000: $2,400,000 = 30.0% x $2,000,000 = $600,000 $8,000,000 Problem 4-2 (continued)</p><p>2001: $6,000,000 = 75.0% x $2,000,000 = $1,500,000 - 600,000 = $900,000 $8,000,000 2002: $1,800,000 - 1,500,000 = $300,000</p><p>Requirement 2</p><p>2000 2001 2002 Construction in progress 2,400,000 3,600,000 2,200,000 Various accounts 2,400,000 3,600,000 2,200,000 To record construction costs.</p><p>Accounts receivable 2,000,000 4,000,000 4,000,000 Billings on construction contract 2,000,000 4,000,000 4,000,000 To record progress billings.</p><p>Cash 1,800,000 3,600,000 4,600,000 Accounts receivable 1,800,000 3,600,000 4,600,000 To record cash collections.</p><p>Construction in progress (gross profit) 600,000 900,000 300,000 Cost of construction (cost incurred) 2,400,000 3,600,000 2,200,000</p><p>Revenue from long-term contracts (1) 3,000,000 4,500,000 2,500,000 To record gross profit. Problem 4-2 (continued)</p><p>(1) Revenue recognized: 2000: 30% x $10,000,000 = $3,000,000 2001: 75% x $10,000,000 = $7,500,000 Less: Revenue recognized in 2000 (3,000,000) Revenue recognized in 2001 $4,500,000 2002: 100% x $10,000,000 = $10,000,000 Less: Revenue recognized in 2000 & 2001 (7,500,000) Revenue recognized in 2002 $2,500,000</p><p>Requirement 3</p><p>Balance Sheet 2000 2001</p><p>Current assets: Accounts receivable $ 200,000 $600,000 Construction in progress $3,000,000 $7,500,000 Less: Billings (2,000,000 ) (6,000,000) Costs and profit in excess of billings 1,000,000 1,500,000</p><p>Requirement 4 2000 2001 1999 Costs incurred during the year $2,400,000 $3,800,000 $3,200,000 Estimated costs to complete as of year-end 5,600,000 3,100,000 - </p><p>2000 2001 1999 Contract price $10,000,000 $10,000,000 $10,000,000 Actual costs to date 2,400,000 6,200,000 9,400,000 Estimated costs to complete 5,600,000 3,100,000 - 0 - Total estimated costs 8,000,000 9,300,000 9,400,000 Estimated gross profit (loss) $ 2,000,000 $ 700,000 $ 600,000 Problem 4-2 (concluded)</p><p>Gross profit (loss) recognition: 2000: $2,400,000 = 30.0% x $2,000,000 = $600,000 $8,000,000</p><p>2001: $6,200,000 = 66.6667% x $700,000 = $466,667 - 600,000 = $(133,333) $9,300,000</p><p>2002: $600,000 - 466,667 = $133,333</p><p>Requirement 5 2000 2001 2002 Costs incurred during the year $2,400,000 $3,800,000 $3,900,000 Estimated costs to complete as of year-end 5,600,000 4,100,000 - </p><p>2000 2001 2002 Contract price $10,000,000 $10,000,000 $10,000,000 Actual costs to date 2,400,000 6,200,000 10,100,000 Estimated costs to complete 5,600,000 4,100,000 - 0 - Total estimated costs 8,000,000 10,300,000 10,100,000 Estimated gross profit (loss) $ 2,000,000 $ (300,000 ) $ (100,000 )</p><p>Gross profit (loss) recognition:</p><p>2000: $2,400,000 = 30.0% x $2,000,000 = $600,000 $8,000,000</p><p>2001: $(300,000) - 600,000 = $(900,000)</p><p>2002: $(100,000) - (300,000) = $200,000 Problem 4-8</p><p>1. Inventory turnover ratio $6,300 ÷ [($800 + 600) ÷ 2] = 9.0 2. Average days in inventory 365 ÷ 9.0 = 40.56 days 3. Receivables turnover ratio $9,000 ÷ [($600 + 400) ÷ 2] = 18.0 4. Average collection period 365 ÷ 18.0 = 20.28 days 5. Asset turnover ratio $9,000 ÷ [($4,000 + 3,600) ÷ 2] = 2.37 6. Profit margin on sales $300 ÷ $9,000 = 3.33% 7. Return on assets $300 ÷ [($4,000 + 3,600) ÷ 2] = 7.89% or: 3.33% x 2.37 times = 7.89% 8. Return on shareholders’ equity $300 ÷ [($1,500 + 1,350) ÷ 2] = 21.1%</p>