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BRAD BRIDGEWATER, INC.           Computation of Gross Profit to Be Recognized on Uncompleted Contract Year Ended December 31, 2004 _____________________________________________________________ Total contract price         Estimated contract cost at completion                                     $2,000,000              ($700,000 + $1,300,000)         Fixed fee                                               ...

(a)   Contract billings to date                                                                   $61,500         Less accounts receivable 12/31/04                                                  21,500         Portion of contract billings collected                ...

(b)   Construction in Process.......................................      535,000              ($935,000 – $400,000)                    Materials, Cash, Payables, etc..................                           535,000         Accounts Receivable ($900,000 – $300,000)....      600,000                 Billings and Construction in Process........                           600,000         Cash ($810,000 – ...

(a)   Gross profit recognized in: 2004 2005 2006 Contract price $1,500,000 $1,500,000 $1,500,000 Costs: Costs to date $400,000 $935,000 $1,070,000 Estimated costs to         complete   600,000   1,000,000 165,000   1,100,000                 0   1,070,000 Total estimated profit 500,000 400,000 430,000 Percentage completed to date          40%*         85%**          100% Total gross profit recognized 200,000 340,000 430,000 Less: Gross profit recognized in previous years      ...

(a)   Cash (2004 slips) (300 X $900)..............................      270,000                 Dock Rent Revenue.........................................                           270,000         Cash (2005 slips) [200 X $900 X (1.00 – .05)]......      171,000                 Unearned Revenue (current)..........................                           171,000         Cash (2006 slips) [60 X $900 X (1.00 – .25)]........        40,500  ...

EXERCISE 18-2 (15-20 minutes) (a)   1.    6/3     Accounts Receivable—Kim Rhode.............      5,000                                   Sales..........................................................                       5,000                6/5       Sales Returns and Allowances.................          400                                     A...

SOLUTIONS TO EXERCISES EXERCISE 18-1 (15-20 minutes) (a)   Huish could recognize revenue at the point of sale based upon the time of shipment because the books are sold f.o.b. shipping point. Because of the return policy one might argue in favor of the cash collection basis. Because the returns can be estimated, one could argue for shipping point less estimated returns. (b)   Based on the available information and lack of any information indi­cating that any of the criteria in FASB Statement No. 48 were not met, the correct treatment is to report revenue at the time of shipment as the gross amount less the 12% normal return factor. This is supported by the legal test of transfer of title and the criteria in FASB No. 48 .   One could be very conservative and use the 30% maximum return allowance. (c)   July Sale Entry.         Accounts Receivable.....................................     16,000,000 ...