CONSTRUCTION, MISC Flashcards
What is the Journal Entry when you recover a receivable?
dr: A/R
cr: Allowance Acct
dr: Cash
cr: A/R
What is the JE to set up Allowance for Doubtful Accounts or Uncollectibles?
dr: Bad Debt Expense
cr: Allowance Acct
What is the JE to write off Receivables?
dr: Allowance Acct
cr: A/R
What is the JE to record partner buy in using the Bonus Method?
(Bonus Adjust Right - BAR)
dr: Cash 50
cr: Capital Ptr A 30
cr: Capital Ptr B 12
cr: Capital Ptr C 8
New Partner paying extra for buy in, or, existing partners issue bonus to partner
EXAMPLE of BONUS METHOD
Net Assets PtrA Ptr B New Ptr 1/6
130 30 100 –
+ 50 50
=180
x 1/6 12 8 (20) **
=30 30
** Plug is bonus to allocate to old ptrs only.
New ptr percentage x Net Assets =
New Ptr Balance AND New Ptr buy-in amt minus New Ptr Bal. = Bonus to exist. ptrs
EXAMPLE of GOODWILL METHOD
Net Assets Ptr A Ptr B New Ptr
130 100 30
+ 50 50/.20=300
=180
(120)*
=300
*Plug GW and allocate to old ptrs only.
Det new Adj. Cap Bal by dividing new buy in amt by new ptrs percntg.
Adj Cap Bal - Net Assets Bal = GW to allocate to old partners
Apply a partner ratio to allocate bonus
Use ratio to determine fraction or percentage of equity in partnership
Ex: Partners allocate profit 3:2
3+2 = 5
3/5 and 2/5 (or 60% and 40%)
Calculate Partnership’s New percentages with addition of a partner buying a 20% interest. Assume orignial ratio is 3:2.
Subtract new ptr’s percentage from 100 then
Multiply result by each ptrs original percentag
Partners were 60/40 = 100%
New ptr is 20%. 100 - 20 = 80%
80% x .60 = 48
80% x .40 = 32
JE for recording Goodwill (GW Method)
CASH 50
GOODWILL 120
CAPITAL A 72
CAPITAL B 48
CAPITAL C 50EXPLAIN CALCULATION FOR ALLOCATION
OF EARNINGS, PROFITS AND LOSSES IN A
PARTNERSHIP given the following:
Profits: shared equally
Losses: 60:40
Salaries: 55k: 45k
Earnings: 80,000
- Determine each partner’s portion of loss or gain beginning
a) Earnings - Salaries = Total Loss/Gain
b) Tot Loss/Gain x Ptr Prcntg = Ptr portion L/G.
Earnings total: 80,000
Less Salaries total 55+45 = (100,000)
a) Total Loss (20,000)
b) so, 60% of (20,000) = (12,000)
40% of (20,000) = (8,000)
next, Salary +/- gain or loss =
Alloc. of Earnings:
55,000 - 12,000 = 43,000 to Ptr A
45,000 - 8,000 = 37,000 to Ptr B
JOURNAL ENTRY
BONDS at ISSUANCE
CASH (amt to purchase)
BIC
DISCOUNT (plug)
BONDS PAYABLE (stated)
ACCRUED INT
PREMIUM (plug)
Cash Buys Diamonds
Bonneville Power Administration or BP Paid Alot
JOURNAL ENTRY
BONDS at RETIREMENT
BONDS PAYABLE (par - stated)
PREMIUM (unamortized)
LOSS (plug)
BIC
DISCOUNT
CASH (amount to retire)
GAIN (plug)
BP Paid Lots
Bics Don’t Come Green
CALCULATE COST FOR NEW PARTNER TO ENTER AT 1/6th
INTEREST, USING THE
EXACT METHOD
Net Assets PtrA Ptr B New Ptr
130 100 30
+ 26 (plug) no allocation 26 = 156
= 156
- Existing Cap Bal / (1 - new ptr prcnt) = New Cap Bal
- New Cap Bal - Prev. Cap Bal = Exact Buy In Cost
EX: 130 / (5/6) = 156
156 -130 = 26
JE for Exact Method
dr: Cash 26
cr: Capital New Ptr 26
Caluculate the capital balance in the partnership based on weighted average capital balance
(10% interest per year s/b credited to each partner on basis of weighted average capital balances)
Balance 1/1 140,000
Additional invstmt 7/1 40,000
Partner w/drawl 8/1 (15,000)
Balance 12/31 165,000
1-1 to 6-30 140,000 x 6/12 = 70,000
7-1 to 7/31 180,000 x 1/12 = 15,000
8/1 to 12/31 165,000 x 5/12 = 68,750
add totals 153,750
153,750 x .10 = interest to credit
Describe the Installment Method
WHY - Used when risk of loss from nonpayment exists.
WHAT: Recognition of some part of the sale is deferred.
WHEN:- Payment over more than one tax year
HOW: (to calc. Gross Profit Realized)
1.) Determine Gross Profit Percentage on sale
2.) Multiply GPP x Amts Collected
= Gross Profit Realized
Formula for Gross Profit Percentage used in Installment Sale.
SALE PRICE OF PROP
- BASIS**
= ADJUSTED BASIS
Adj Basis / Contract Price* = GROSS PROFIT percentage
- Contract Price = Selling price less any mortgage/debt that buyer assumes.
** Purchase Price, Improvements, depreciation, casualty losss, selling expenses.
Formula for Percentage of Completion Method.
- Tot Contract - Est Tot Costs = Est Tot Profit
- Cost to Date / Est Tot Costs = % of Completion
- Est Tot Profit x % of Comption = GP to date
- GP to date - GP to date at end of last period = GP in current period
Total Profit will always change!!!
*GP is added to Const in Progress (CIP) account
At year end, Billings and CIP are netted on balance sheet to report either
CA - Cost in excess of billings + profit
CL - Billings in excess of costs + profit
Anticipated losses are always recognized Immediately.
COMPLETED CONTRACT METHOD
- When is it Appropriate to Use?
- When is profit Reported?
- What account are costs and billings accunulated in?
- Is it consistent with the matching concept?
- Report no profit until job is finished (violates matching concept)
- Still accumulate costs in CIP acct
- Billings still accumulated in the Billings Acct
- Considered inappropriate unless
- Percentage of completion cannot be determined
- Total costs cannot be estimated
Percentage of Completion:
Quick Glance Formula
Total Const. Costs (act & est to complete)
= Percentage of Completion
x Tot Profit
(Actual + Estimated to Complete)
Profit to be recogized this year using percentage of completion
Quick Glance Formula:
Profit recognized to date
-Less Profit previously recognized
=Equals Profit to recognize this year
