Page 230 - Accounting Principles (A Business Perspective)

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2008 2009 2010
Gross margin rate ...................... ..... 45% 48% 50%
Cash collected in 2010 from
sales of lots made in................ ..... $640,000 $800,000 $900,000
The total selling price of the lots sold in 2010 was USD 3,000,000, while general and administrative expenses
(which are not included in the costs used to determine gross margin) were USD 800,000.
a. Compute net income for 2010 assuming revenue is recognized on the sale of a lot.
b. Compute net income for 2010 assuming use of the installment basis of accounting for sales and gross margin.

Alternate problem C The following contract prices and costs relate to all of Orlando Construction Company's
long-term construction projects (in millions of dollars):
Costs Incurred
Cost to Be
Contract Prior to In Incurred in
Price 2010 2010 Future Years
On projects completed in 2010 $46 $4 $36 $0
On incomplete projects 144 24 48 48
General and administrative expenses for 2010 amounted to USD 1,200,000. Assume that the general and

administrative expenses are not to be treated as a part of the construction cost.
a. Compute net income for 2010 using the completed-contract method.
b. Compute net income for 2010 using the percentage-of-completion method.
Alternate problem D In each of these circumstances, the accounting practices may be questioned. Indicate
whether you agree or disagree with the accounting practice employed and state the assumptions, concepts, or
principles that justify your position.
The salaries paid to the top officers of the company were charged to expense in the period in which they were

incurred even though the officers spent over half of their time planning next year's activities.
No entry was made to record the belief that the market value of the land owned (carried in the accounts at USD
800,000) had increased.
The acquisition of a tract of land was recorded at the price paid for it of USD 400,000, even though the company
would have been willing to pay USD 600,000.
A truck acquired at the beginning of the year was reported at year-end at 80 per cent of its acquisition price even
though its market value then was only 65 per cent of its original acquisition price.
Alternate problem E Select the best answer to each of the following questions:
In the conceptual framework project, how many financial reporting objectives were identified by the FASB?

a. One.
b. Two.
c. Three.
d. Four.
The two primary qualitative characteristics are:
a. Predictive value and feedback value.
b. Timeliness and verifiability.

c. Comparability and neutrality.
d. Relevance and reliability.
A pervasive constraint of accounting information is that:
a. Benefits must exceed costs.

Accounting Principles: A Business Perspective 231 A Global Text