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Study Guide

# BUS 320- Final Exam Guide - Comprehensive Notes for the exam ( 178 pages long!)

Department
Course Code
BUS 320
Professor
Dennis Chung
Study Guide
Final

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SFU
BUS 320
FINAL EXAM
STUDY GUIDE

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Dennis Chung 2015
BUS320
Instructions
1. Complete the worksheet that we started in class for Whitemud Construction Company. Carry
out all the necessary calculations and obtain the relevant figures for 20X3 following the same
approach and procedures we used for 20X1 and 20X2. Notice that 20X3 is also a year with
“problem” when you do the Pause and Check. If you do everything correctly, your Construction
Revenue for 20X3 should be \$430,000 and Construction Expense should also be \$430,000.
Reference: If you want to refer to our textbook for further information about unprofitable
contracts, you may find the discussions on pages 342-344 useful.
2. Study the next two pages of this file and confirm your understanding of all the journal entries
that are necessary for 20X1, 20X2, and 20X3. In particular, make sure you understand the 4th
journal entry that you make every year. This is a very important entry and it is the entry that we
use to recognize revenue and expense under the percentage-of-completion method. Don’t forget
the 5th journal entry that we make only for 20X3; this is the entry we use to record the
completion of the contract.
3. When you study the next two pages of this file, make sure that you also understand how the
financial statements are affected by the long-term contract. In particular, you need to understand
how the Construction-in-progress inventory account and the Billings on Contracts account are
presented on the balance sheet, and the reason why in 20X1 they are presented on Assets side
and in 20X2 they are presented on the Liability side of the balance sheet.
4. Summarize all your results for Whitemud Construction Company in the summary table
distributed to you. Get use to the format of this summary table as this is what we will use in this
class for similar problems involving long-term contracts.
5. You are now ready to move on and study the Completed Contract method and the IAS11,
para.32 “zero-profit” method. Use the AB Construction Limited example that I distributed in
class.
Reference: If you want to refer to our textbook for further information about these two methods,
you may find the discussions on pages 340-341 useful.
6. Next, study the CD Construction Limited example that I distributed to you in class. This is an
example that involves an unprofitable contract in 20X2. You have to understand what we have
learned so far about unprofitable contracts and apply the concept on your own to the Completed
Contract method and the IAS11, para.32 “zero-profit” method. Keep in mind that the accounting
standards (both IFRS and ASPE) require the loss on an unprofitable contract be recognized in
full right away in the year when the loss is expected. By now, you are well-equipped and should
be fully capable of extending your knowledge and applying what you have learned to situations
involving something new or slightly unfamiliar, and you should be proud of yourself for what
you have accomplished.
7. The answers for AB Construction Limited and CD Construction Limited are provided on the last
two pages of this file to help you check and confirm your understanding of all the important
issues involved in the application of the Completed Contract method and the IAS11, para.32
“zero-profit” method.
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Dennis Chung 2015
BUS320
Whitemud Construction Company – Percentage-of-Completion Method
Journal entries and F/S presentation
20X1
Journal entries:
DR Construction in progress inventory (B/S) 400,000
CR Cash, Accounts payable, etc. (B/S) 400,000
DR Accounts receivable (B/S) 300,000
CR Billings on contracts (B/S) 300,000
DR Cash (B/S) 200,000
CR Accounts receivable (B/S) 200,000
DR Construction in progress inventory (B/S) 100,000
DR Construction expense (I/S) 400,000
CR Construction revenue (I/S) 500,000
F/S presentation:
Whitemud Construction Company
Partial Income Statement
For the year ended December 31, 20X1
Construction Revenue \$500,000
Less: Construction Expense (400,000)
Gross Profit on construction contracts \$100,000
Whitemud Construction Company
Partial Balance Sheet
December 31, 20X1
Current Assets:
Accounts receivable (on construction contracts) \$100,000
Inventory:
Construction in progress inventory \$500,000
Less: Billings on contracts (300,000)
Construction in progress in excess of billings \$200,000
20X2
Journal entries:
DR Construction in progress inventory (B/S) 200,000
CR Cash, Accounts payable, etc. (B/S) 200,000
DR Accounts receivable (B/S) 600,000
CR Billings on contracts (B/S) 600,000
DR Cash (B/S) 360,000
CR Accounts receivable (B/S) 360,000
DR Construction expense (I/S) 220,000
CR Construction revenue (I/S) 70,000
CR Construction in progress inventory (B/S) 150,000
You should be
able to see the
similarities
between what we
do here with this
journal entry and
what we did in our
5 little pig
example in class
Make sure you
understand
why
Construction
In Progress
Inventory and
Billings on
Contracts are
presented in
this particular
way here on
the Assets side
of the B/S
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