Question

Paulson Company uses the input method based on costs incurred to measure progress toward completion of long-term construction contracts. The following information relates to a contract that was awarded at a price of $700,000. The estimated costs were $500,000, and the contract duration was 3 years.

Answer 1

Answer:

Ute Co. had the following capital structure during Year 1 and Year 2:

Preferred stock, $10 par, 4% cumulative,

25,000 shares issued and outstanding $ 250,000

Common stock, $5 par, 200,000 shares

issued and outstanding 1,000,000

The preferred stock is not convertible. Ute reported net income of $500,000 for the year ended December 31, Year 2. Ute paid no preferred dividends during Year 1 and paid $16,000 in preferred dividends during Year 2. In its December 31, Year 2, income statement, what amount should Ute report as basic earnings per share?

The amount of BEPS equals income available to common shareholders, divided by the weighted-average number of common shares outstanding. Cumulative preferred dividends, whether or not declared, are included in the calculation. The annual amount is $10,000 ($250,000 × 4%). However, only an amount equal to the dividend that should be declared (whether or not paid) for the current year is included. Thus, the amount of BEPS reported is $2.45 [($500,000 NI - $10,000 cumulative preferred dividends) ÷ 200,000 common shares].

Make sure to fully calculate the both types of stock and match them to the period they are in.

The most appropriate reason to institute a new principle

is that it constitutes an improvement in financial reporting.

Answer 2

Answer:

$70,000

Explanation:

1) Calculate estimated total gross profit: (contract price minus estimated total costs)

                                                           Year 1                           Year 2

costs to date                                     300,000                      390,000

+ estimated costs to complete        250,000                      130,000

= estimated total cost                       550,000                      520,000

contract price                                    700,000                      700,000

- estimated total cost                        550,000                      520,000

= estimated total gross profit            150,000                       180,000

Completion percentage for Year 2 = Ratio of costs incurred to date to estimated total costs = 390,000 ÷ 520,000 = 75%

Therefore, cumulative gross profit recognized at the end of Year 2 = 180,000 × 75% = 135,000

135,000 - 65,000 (amount recognized in Year 1) = $70,000 AKA the amount recognized in year 2

Hope this helped!