Practice Question 2

Ex.
6-107Percentage-of-completion method
Oilers Construction was awarded a contract to construct an interchange at the junction of two major
freeways in a Canadian city at a total contract price of $ 10,000,000. The estimated total costs to complete
the project were $ 8,000,000, and it is expected to take two years.
Instructions
Using the percentage-of-completion method and the cost-to-cost basis,
a) Prepare the journal entry to record construction costs of $ 4,400,000 for the first year.
b) Prepare the journal entry to record progress billings of $ 5,000,000 for the first year.
c) Prepare the journal entry to recognize the revenue and gross profit for the first year.
Solution 6-107
% complete = 4,400,000 ÷ 8,000,000 = 55%
a) Construction in Process............................................................................ 4,400,000

Materials, Cash, A/P, etc................................................................... 4,400,000
b) Accounts Receivable................................................................................ 5,000,000

Billings on Construction in Process.................................................. 5,000,000
c) Construction Expenses............................................................................. 4,400,000

Construction in Process (gross profit)...................................................... 1,100,000
Revenue from Long-term Contract (55% x $ 10,000,000)................ 5,500,000
Ex6-109Kimbo Corporation sold 500 widgets during 2020 at a total price of $ 1.4 million, with a
warranty guarantee that the widgets were free from any defects. The cost of widgets sold is $ 600,000.
The term of the assurance warranty is one year, with an estimated cost of $ 10,000.
Instructions
What are the journal entries that Kimbo Company should make in 2020 related to the sale and the related
warranties?
Solution 6-109
To record the revenue and liabilities related to the warranties:
Cash..................................................................................... 1,400,000
Warranty Liability........................................................ 10,000
Warranty expenses would be recorded as incurred and the liability reduced accordingly
To reduce inventory and recognize cost of goods sold:
Cost of goods sold................................................................ 600,000
Inventory...................................................................... 600,000
Ex. 6-111Consignment sale

In 2020, the following transaction occurred between Senators Wholesale Corp. (consignor) and
Canadiens Stores (consignee):
On March 2, 2020 Senators shipped merchandise costing $ 52,000 to Canadiens. Senators paid $ 4,000
for freight and Canadiens paid $ 3,000 for advertising (to be reimbursed by Senators). By the end of the
third quarter of 2020 (September 30, 2020), Canadiens advised Senators that all the merchandise has been
sold for $ 70,000, and forwarded the proceeds (net of a 15% commission and the outlay for advertising)
to Senators.
Instructions
a) Prepare all entries for Canadiens to account for this transaction.
b) Prepare all entries for Senators to account for this transaction.
Solution 6-111
a) Canadiens
Receivable from Consignor.............................................................................. 3,000

Cash.......................................................................................................... 3,000
To set up receivable for advertising
Cash................................................................................................................. 70,000
Payable to Consignor................................................................................ 70,000
To record sale
Payable to Consignor....................................................................................... 70,000

Receivable from Consignor...................................................................... 3,000
Commission Revenue*............................................................................. 10,500
*$ 70,000 x 15% = $ 10,500
Cash.......................................................................................................... 56,500
To record Remittance to consignor
b) Senators
Inventory on Consignment............................................................................... 52,000
Merchandise Inventory............................................................................. 52,000
To record Shipment of consigned merchandise
Inventory on Consignment............................................................................... 4,000

Cash.......................................................................................................... 4,000
To record Payment of freight costs
Cash................................................................................................................. 56,500
Advertising Expense........................................................................................ 3,000
Commission Expense....................................................................................... 10,500
Revenue from Consignment Sales............................................................ 70,000
To record Remittance from consignee
Cost of Goods Sold (52,000 + 4,000)............................................................... 56,000

Inventory on Consignment....................................................................... 56,000
To record Cost of sales for consignment sales

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a) Construction in Process............................................................................ 4,400,000

b) Accounts Receivable................................................................................ 5,000,000

c) Construction Expenses............................................................................. 4,400,000

Ex. 6-111Consignment sale

Receivable from Consignor.............................................................................. 3,000

Payable to Consignor....................................................................................... 70,000

Inventory on Consignment............................................................................... 4,000

Cost of Goods Sold (52,000 + 4,000)............................................................... 56,000

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