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Assessment 2

Use this template to complete Parts 1, 2, and 4 of Assessment 2.

Part 1: Classified Balance Sheet

Part 2: Income and Retained Earnings Statements

Part 4: Revenue Recognition

1. Explain each of the following methods of revenue recognition and indicate whether each is in accordance with generally accepted accounting principles.

a. Point of sale:

b. Completed-contract:

c. Percentage-of-completion:

d. Installment-sales:

2. Compute the revenue to be recognized in fiscal year 2018

3. 5 for the two operating divisions of Worth More Industries in accordance with generally accepted accounting principles. Where appropriate, show all calculations leading to the final solution.

Worth More Industries

A. Clear Water Pools Construction Division

B. Madoff Securities Division

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Assessment 2 Information, Parts 1–4

Part 1: Classified Balance Sheet

The adjusted trial balance of Jordan Contracting and other related information for the year 2018 is presented below.

Additional Information

1. The LIFO method of inventory valuation is used.

2. The cost and fair value of the long-term investments consisting of stock and bonds is the same.

3. The amount of Construction Work in Progress account represents the costs expended to date on a building in the process of being constructed. The land on which the building sits cost $46,750.

4. The patents were purchased at a cost of $11,000 and are being amortized on a straight-line basis.

5. $1,000 of the unamortized discount on bonds payable will be amortized in 2019.

6. The notes payable are bank loans secured by long-term investments with a fair value of $66,000. The bank loans will mature in 2019.

7. The bonds payable have an interest rate of 11%. Interest is payable each December 31, and the bonds mature January 1, 2020.

8. 600,000 shares of $1 par value common stock are authorized and 150,000 shares have been issued and are outstanding.

Part 2: Income Statement

Presented below is information related to D. B. Stanley Company for 2018.

Part 3: Cash Flow Statement Analysis

The financial statements of Falcon Company are found below.

Additional Information

1. Dividends of $19,800 were declared and paid.

2. During 2018 equipment was sold for $5,500 cash. The equipment originally cost $8,250 and had a book value of $5,500 at the time of the sale.

3. All depreciation expense, $4,400, was in the selling expense category.

4. All sales and purchases were on account.

5. Additional equipment was purchased for $3,850 cash.

Part 4: Revenue Recognition

Worth More Industries is split into two different divisions—Clear Water Pools and Madoff Securities. Each operates with its own accounting system and revenue recognition method.

Clear Water Pools

For fiscal year ending November 30, 2018, Clear Water Pools worked on one construction project. It was awarded a contract for $1,650,000 on May 18, 2018, to construct a swimming pool, and the construction started on June 19, 2018. Its estimated completion costs were $1,375,000 for a 2-year time period that started at the date of the contract. On November 30, 2018, $429,000 of construction costs had been incurred and $522,500 progress billings had been made. On November 30, 2018, the construction costs to complete the project were reviewed and the estimated amount was $891,000, which was lower than projected. The change was due to a decline in raw material costs. Revenue recognition is based upon a percentage-of-completion method.

Madoff Securities

Madoff Securities uses manufacturers’ agents who forward orders for alarm systems and the down payments. Madoff then ships its products from the factory to customers directly. The balance due is then billed directly to the customer, including shipping costs. Orders for $3,300,000 were received during the fiscal year ending November 30, 2018. Madoff received $330,000 in down payments; it billed $2,860,000 for goods and $55,000 in freight costs. Manufactures agents are paid a 10% commission on product price once goods are shipped to the customer. Madoff offers a 90-day warranty on goods after shipment, and the returns have been about 1% of sales. Revenue is recognized at the point of sale by this division.

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