Intermediate Accounting, 10 Ed
10th Edition
ISBN: 9781260310177
Author: Mark W. Nelson, Wayne B. Thomas J. David Spiceland
Publisher: McGraw-Hill Education
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Question
Chapter 6, Problem 6.9E
Requirement – 1
To determine
Transaction price:
Transaction price refers to the price that is paid at the time of delivery or after delivery of goods and/or services. Specific situations affecting the transaction price are as follows:
- Variable amount of consideration and the restriction on its recognition.
- Rights for sales return
- Whether the seller is acting as a principle or an agent
- Time value of money
- Payments by the seller to the customer
Variable consideration:
Variable consideration refers to the uncertain transaction price that depends upon the outcome of future events.
To determine: The transaction price, and assume T uses the expected value as its estimate of variable consideration.
Requirement – 2
To determine
The transaction price, and assume T uses the most likely value as its estimate of variable consideration. .
Requirement – 3
To determine
The transaction price, and assume T uses the expected value as its estimate of variable consideration in uncertain event.
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Question 1
Gerhana company is considering two mutually exclusive projects, X and Y. Project X costs
120,000 and is expected to generate RM65,000 in year one and RM75,000 in year two. Project Y
costs RM190,000 and is expected to generate RM64,000 in year one, RM67,000 in year two,
RM56,000 in year three, and RM45,000 in year four. The firm's required rate of return for these
projects is 10%.
i) For each project, draw a timeline that shows cash flow spent or received during the projects
lives.
ii) What is the net present value (NPV) for Project X and Y?
iii) Compute profitability index for Project X and Y?
iv) Based on your answer, which project should you select. Justify your answer.
4
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-kipped
eBook
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References
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F1
A project has the following estimated data: Price = $72 per unit; variable costs = $46 per
unit; fixed costs $21,000; required return = 15 percent; initial investment = $42,000; life
= six years.
a. Ignoring the effect of taxes, what is the accounting break-even quantity? (Do not
round intermediate calculations and round your answer to 2 decimal places, e.g.,
32.16.)
b. What is the cash break-even quantity? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
c. What is the financial break-even quantity? (Do not round intermediate calculations
and round your answer to 2 decimal places, e.g., 32.16.)
d. What is the degree of operating leverage at the financial break-even level of output?
(Do not round intermediate calculations and round your answer to 3 decimal
places, e.g., 32.161.)
a. Accounting break-even quantity
b. Cash break-even quantity
c. Financial break-even quantity
d.…
1
14
Worst
297
15,400
792,000
points
b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs. (A
negative answer should be indicated by a minus sign. Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
C.
What is the cash break-even level of output for this project (ignoring taxes)? (Do not
round intermediate calculations and round your answer to 2 decimal places, e.g.,
32.16.)
d-1. What is the accounting break-eveň level of output for this project? (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
d-2. What is the degree of operating leverage at the accounting break-even point? (Do
not round intermediate calculations and round your answer to 3 decimal places,
e.g., 32.161.)
b. ANPV/AFC
c. Cash break-even
d-1. Accounting break-even
d-2. Degree of operating leverage
Chapter 6 Solutions
Intermediate Accounting, 10 Ed
Ch. 6 - What are the five key steps a company follows to...Ch. 6 - What indicators suggest that a performance...Ch. 6 - What criteria determine whether a company can...Ch. 6 - We recognize service revenue either at one point...Ch. 6 - What characteristics make a good or service a...Ch. 6 - Prob. 6.6QCh. 6 - What must a contract include for the contract to...Ch. 6 - How might the definition of probable affect...Ch. 6 - When a contract includes an option to buy...Ch. 6 - Prob. 6.10Q
Ch. 6 - Prob. 6.11QCh. 6 - Is a customers right to return merchandise a...Ch. 6 - Prob. 6.13QCh. 6 - Under what circumstances should sellers consider...Ch. 6 - When should a seller view a payment to its...Ch. 6 - What are three methods for estimating stand-alone...Ch. 6 - When is revenue recognized with respect to...Ch. 6 - In a franchise arrangement, what are a franchisors...Ch. 6 - When does a company typically recognize revenue...Ch. 6 - Prob. 6.20QCh. 6 - Prob. 6.21QCh. 6 - Prob. 6.22QCh. 6 - Must bad debt expense be reported on its own line...Ch. 6 - Explain the difference between contract assets,...Ch. 6 - Explain how to account for revenue on a long-term...Ch. 6 - Prob. 6.26QCh. 6 - Prob. 6.27QCh. 6 - Timing of revenue recognition LO53 Estate...Ch. 6 - Allocating the transaction price LO54 Sarjit...Ch. 6 - Existence of a contract LO5-5 Tulane Tires wrote...Ch. 6 - Prob. 6.6BECh. 6 - Prob. 6.7BECh. 6 - Performance obligations; warranties LO55 Vroom...Ch. 6 - Prob. 6.9BECh. 6 - Prob. 6.10BECh. 6 - Variable consideration LO56 Leo Consulting enters...Ch. 6 - Prob. 6.16BECh. 6 - Prob. 6.17BECh. 6 - Prob. 6.18BECh. 6 - Prob. 6.19BECh. 6 - Prob. 6.20BECh. 6 - Prob. 6.21BECh. 6 - Estimating stand-alone selling prices: expected...Ch. 6 - Estimating stand-alone selling prices; residual...Ch. 6 - Prob. 6.24BECh. 6 - Prob. 6.25BECh. 6 - Contract assets and contract liabilities LO58...Ch. 6 - Long-term contract; revenue recognition over time;...Ch. 6 - Prob. 6.34BECh. 6 - Long-term contract; revenue recognition upon...Ch. 6 - Long-term contract; revenue recognition; loss on...Ch. 6 - Prob. 6.1ECh. 6 - Allocating transaction price LO54 Video Planet...Ch. 6 - Prob. 6.4ECh. 6 - Prob. 6.6ECh. 6 - Prob. 6.7ECh. 6 - Prob. 6.9ECh. 6 - Variable considerationmost likely amount; change...Ch. 6 - Variable considerationexpected value; change in...Ch. 6 - Prob. 6.12ECh. 6 - Prob. 6.13ECh. 6 - Prob. 6.14ECh. 6 - Approaches for estimating stand-alone selling...Ch. 6 - FASB codification research LO56, LO57 Access the...Ch. 6 - FASB codification research LO58 Access the FASB...Ch. 6 - Long-term contract; revenue recognition over time;...Ch. 6 - Prob. 6.1PCh. 6 - Prob. 6.2PCh. 6 - Prob. 6.3PCh. 6 - Prob. 6.5PCh. 6 - Variable consideration; change of estimate LO53,...Ch. 6 - Prob. 6.7PCh. 6 - Prob. 6.8PCh. 6 - Prob. 6.10PCh. 6 - Long-term contract; revenue recognition over time...Ch. 6 - Prob. 6.1DMPCh. 6 - Judgment Case 52 Satisfaction of performance...Ch. 6 - Judgment Case 53 Satisfaction of performance...Ch. 6 - Prob. 6.5DMPCh. 6 - Prob. 6.7DMPCh. 6 - Prob. 6.9DMPCh. 6 - Prob. 6.10DMPCh. 6 - Prob. 6.12DMPCh. 6 - Prob. 6.13DMPCh. 6 - Prob. 6.14DMPCh. 6 - Prob. 6.15DMPCh. 6 - Prob. 1CCTC
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