ACCTG 471 - Exam #1 with correct 100% answers 2024.

Assets - answer--Cash -A/R -Securities -Inventory -PP&E *Normal Balance is a DEBIT (Debits increase asset accounts) Liabilities - answer--A/P -Wages Payable -Notes Payable -Pension Obligations *Normal Balance is a CREDIT (Credits increase liabilities) Equity - answer-1. Paid-in Capital 2. Retained Earnings *Normal Balance is a CREDIT (Credits increase equity) -A debit to the equity account is an increased expense -A credit to the equity account is an increase in retained earnings (via revenue for example) or an increase in common stock Revenue - answer--Sales -Revenue from Investment Banking -Interest Income *Normal Balance is a CREDIT (a credit to the revenue account increases it) Expense - answer--COGS -SG&A -Interest Expense -R&D Expense -Advertising Expense *Normal Balance is a DEBIT (a debit to the expense account increases it - thus decreasing overall equity account) $1,000 was paid on account to the supplies vendor. - answer-The transaction involves a payment made on account to the supplies vendor for $1,000. The cash payment decreases assets, cash, by $1,000 and a liability, accounts payable, is reduced by the same amount. Economic Events - answer-The first objective of any accounting system is to identify the economic events that can be expressed in financial terms by the system. An economic event for accounting purposes is any event that directly affects the financial position of the company. Recall from Chapter 1 that financial position comprises assets, liabilities, and owners' equity. Broad and specific accounting principles determine which events should be recorded, when the events should be recorded, and the dollar amount at which they should be measured. *Economic Events are either: a.) Internal Events b.) External Events a.) Internal Events - answer-On the other hand, internal events directly affect the financial position of the company but don't involve an exchange transaction with another entity. Examples are the depreciation of equipment and the use of supplies. As we will see later in the chapter, these events must be recorded to properly reflect a company's financial position and results of operations in accordance with the accrual accounting model. b.) External Events - answer-Economic events can be classified as either external events or internal events. External events involve an exchange between the company and a separate economic entity. Examples are purchasing merchandise inventory for cash, borrowing cash from a bank, and paying salaries to employees. In each instance, the company receives something (merchandise, cash, and services) in exchange for something else (cash, assumption of a liability, or both). Steps of the Accounting Processing Cycle: - answer-A.) During the Accounting Period: 1. Obtain information about external transactions from source documents 2. Analyze the Transaction 3. Record the Transaction in a Journal 4. Post from the Journal to the General Ledger Accounts B.) At the end of the Accounting Period: 5. Prepare an Unadjusted Trial Balance 6. Record Adjusting Entries and post to the General Ledger Accounts 7. Prepare and Adjusted Trial Balance 8. Prepare Financial Statements C.) At the end of the Year: 9. Close the Temporary Accounts to Retained Earnings 10. Prepare a post-closing Trial Balance A.) During the Accounting Period: - answer-1. Obtain information about external transactions from source documents 2. Analyze the Transaction 3. Record the Transaction in a Journal 4. Post from the Journal to the General Ledger Accounts B.) At the end of the Accounting Period: - answer-5. Prepare an Unadjusted Trial Balance 6. Record Adjusting Entries and post to the General Ledger Accounts 7. Prepare and Adjusted Trial Balance 8. Prepare Financial Statements C.) At the end of the Year: - answer-9. Close the Temporary Accounts to Retained Earnings 10. Prepare a post-closing Trial Balance Temporary Accounts - answer-Represent changes in the RE component of shareholders' equity caused by revenue, expense, gain, and loss transactions Balances are closed or zeroed out—closing process Permanent Accounts - answer-Represent the basic financial position elements (Assets, liabilities, and shareholders' equity) Adjusting Entries (3) - answer-Adjusting Entries are Necessary for 3 Situations: 1. Prepayments (aka Deferrals) 2. Accruals 3. Estimates Prepayments - answer-Prepayments are transactions in which the cash flow precedes expense or revenue recognition. Prepayments include prepaid expenses and deferred revenues. Accruals - answer-Accruals involve transactions where the cash outflow or inflow takes place in a period subsequent (coming after) to expense or revenue recognition. Accruals include accrued liabilities and accrued receivables. Estimates - answer-Accountants often must make estimates of future events in order to comply with the accrual accounting model. For example, the calculation of depreciation expense requires an estimate of expected useful life of the asset being depreciated as well as its expected residual value. One adjusting-entry situation involving an estimate that does not fit neatly into either the prepayment or accrual classification is bad debts. Accounting for bad debts requires a company to estimate the amount of accounts receivable that ultimately will prove to be uncollectible and to reduce accounts receivable by that estimated amount. This is neither a prepayment nor an accrual because it does not involve the payment of cash either before or after income is reduced. Contra Asset Account: - answer-The normal balance in a contra asset account will be a credit, that is, "contra," or opposite, to the normal debit balance in an asset account. The purpose of the contra account is to keep the original cost of the asset intact while reducing it indirectly. In the balance sheet, office equipment is reported net of accumulated depreciation. If expenses exceed revenues for the accounting period, the income summary account: - answer-a.) Will have a debit balance after closing The correct answer is a. Revenues are debited to reduce them to zero and the income summary account is credited. Expenses are credited to reduce them to zero and the income summary account is debited. So, a debit balance in income summary results from expenses for the period exceeding revenues. Temporary accounts would not include: - answer-b.) Accounts Receivable The correct answer is b. Accounts receivable is a permanent asset account. Converting Cash Basis Income to Accrual Basis Income - answer-If an Asset Account: -Increases: Add increase to the Cash Income Amount -Decreases: Subtract the decrease from the cash Income Amount If a Liability Account: -Increases: Decrease Cash Income Amount by the amount of the Increase -Decreases: Increase the Cash Income amount by the amount of the decrease Cost of Goods Sold (CoGS) Formula - answer-CoGS= Beginning Inventories +Purchases -Ending Inventories Goods Purchased Formula - answer-Goods Purchased= CoGS (aka Supplies Expense) +Ending Balance of Supplies -Beginning Balance of Supplies Current Assets (5): - answer-1. Cash & Cash Equivalents 2. Short-term Investments 3. Accounts Receivable 4. Inventory 5. Prepaid Expenses 1. Cash & Cash Equivalents (Current Asset) Include: - answer-1. Cash 2. Commercial Paper 3. Money-market Funds 4. US T-Bill 2. Short-term Investments (Current Asset) Include: - answer-1. Liquid Investments not classified as cash equivalents Non-Current Assets (4): - answer-1. Investments 2. PP&E 3. Intangible Assets 4. Other Assets 1. Investments (Non-Current Assets) Include: - answer-Assets acquired that are not used directly in the operations of the business. Examples: other companies' equity and debt securities, land held for speculation, noncurrent receivables, and cash set aside for special purpose. Investments are noncurrent because they are not intended to be converted into cash in the next year or operating cycle. 2. PP&E (Non-Current Assets) Include: - answer-Tangible, long-lived assets used in the operations of the business. Examples: land, buildings, equipment, machinery, and furniture. 3. Intangible Assets (Non-Current Assets) Include: - answer-Exclusive rights that a company can use to generate future revenues. Much of the value of intangible is not reported in the B/S. Examples: goodwill, copyrights, trademarks, patents and computer programs. 4. Other Assets (Non-Current Assets) Include: - answer-Exclusive rights that a company can use to generate future revenues. Includes long-term prepaid expenses (called deferred charges). Liabilities (2): - answer-1. Current Liabilities 2. Long-Term Liabilities 1. Current Liabilities Include (5): - answer-Expected to be satisfied within one year or the operating cycle. Include: 1. Accounts Payable 2. Notes Payable 3. Unearned Revenues 4. Accrued Liabilities 5. The current maturing portion of long-term debt. 2. Long-Term Liabilities Include (2): - answer-Obligations that will not be satisfied in the next year or operating cycle. Examples: 1. Long-Term Debt 2. Long-Term Deferred Services Revenue. Current assets include cash and all other assets expected to become cash or be consumed: - answer-d.) Within one year or one operating cycle, whichever is longer The correct answer is d. The criterion used to classify an asset as current is whether that asset will be consumed or converted within one year or the operating cycle, whichever is longer. For most companies, one year will be longer than the operating cycle. However, companies constructing very large long-term assets such as ships or airplanes may have operating cycles exceeding one year. Shareholder's Equity - answer-Owners' residual claim Composed of (2): 1. Paid-in Capital 2. Retained Earnings US GAAP - Balance Sheet - answer--Financial Accounting Standards Board (FASB) -Does not specify a minimum list of items to be presented in the balance sheet. -Some U.S. companies use the statement of financial position title as well. -Presents current assets and liabilities before noncurrent assets and liabilities. IFRS (International Financial Reporting Standards) on the Balance Sheet - answer-IFRS set by the IASB (International Accounting Standards Board) -Specifies a minimum list of items to be presented in the balance sheet. -Statement title changed to statement of financial position, although title is not required. -Does not prescribe the format of the balance sheet, but balance sheets prepared using IFRS often report noncurrent items first. Which of the following is true regarding GAAP and IFRS? - answer-c.) Many companies reporting under IFRS present noncurrent assets before current assets in the balance sheet -The correct answer is c. There are more similarities than differences between GAAP and IFRS -IFRS specifies a minimum number of items to be reported in the balance sheet -Most IFRS filers present noncurrent assets before current assets on the balance sheet which is a direct contrast to the presentation under U.S. GAAP. Liquidity Ratios (2): - answer-1. Current Ration 2. Acid-test (Quick) Ratio 1. Current Ratio (Liquidity) - answer-Current Ratio= Current Assets/Current Liabilities -Measures a company's ability to satisfy its short-term liabilities Working Capital= (current assets - current liabilities) Acid-test (Quick) Ratio (Liquidity) - answer-Acid-Test (Quick) Ratio= (Cash + ST Investments + Receivables)/Current Liabilities By excluding inventory and prepaid items, it provides a more stringent indication of a company's ability to pay its current liabilities Financing Ratios (2): - answer-1. Debt-to-Equity Ratio 2. Times Interest Earned Ratio 1. Debt-to-Equity Ratio - answer-Debt-to-Equity Ratio= Total Liabilities/Total Shareholders' Equity Indicates the extent of reliance on creditors, rather than owners, in providing resources. 2. Times Interest Earned Ratio - answer-Times Interest Earned Ratio= EBIT (NI + Int. Expense + Income Tax)/Interest Expense Indicates the margin of safety provided to creditors Geisner Inc. has total assets of $1,000,000 and total liabilities of $600,000. The industry average debt to equity ratio is 1.20. Calculate Geisner's debt to equity ratio and indicate whether the company's default risk is higher or lower than the average of other companies in the industry. - answer-c.) 1.50; Higher default risk The correct answer is c: Debt to equity ratio = $600,000 ÷ $400,000* = 1.50 * Equity = Assets − Liabilities = $1,000,000 − $600,000 = $400,000 Subsequent Events - answer-Events that have material effects on the company's financial position after FYE but before the financial statements are issued -Issuance of debt or equity -Business combinations or the sale of a business -Sale of assets -An event that sheds light on the outcome of a loss contingency; etc. Noteworthy Events and Transactions - answer-Transactions and events that occur only occasionally but are important to evaluation a company's financial statement -Related party transactions -Errors (unintentional) and irregularities (intentional) -Illegal acts (e.g., bribes, kickbacks, illegal contributions, and other violations) The Auditors' Report (4): - answer-1. Unqualified Opinion 2. Qualified Opinion 3. Adverse Opinion 4. Disclaimer 1. Unqualified Opinion (Auditors' Report) - answer--Auditor satisfied that the financial statements present fairly the financial position, results of operations, and cash flows, and are "in conformity with accounting principles generally accepted in the US". -Explanatory paragraph: (i) lack of consistency; (ii) uncertainty; (iii) emphasis of a matter relating to a significant event. 2. Qualified Opinion (Auditors' Report) - answer-An exception to a standard unqualified opinion, but not serious enough to invalidate the financial statement as a whole 3. Adverse Opinion (Auditors' Report) - answer-Nonconformity with GAAP Inadequate disclosure 4. Disclaimer (Auditors' Report) - answer-Limitation or restriction in the scope of examination, i.e., insufficient information to express an opinion What is a Reportable Operating Segment? - answer-According to U.S. GAAP guidelines, a management approach is used in determining which segments of a company are reportable. This approach is based on the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. Therefore, the segments are evident from the structure of the enterprise's internal organization. More formally, the characteristics that define an operating segment are(3): - answer-1. A component of an enterprise that engages in business activities from which it may recognize revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise). 2. A component of an enterprise whose operating results are regularly reviewed by the enterprise's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. 3. A component of an enterprise for which discrete financial information is available. For areas determined to be reportable operating segments, the required disclosures are (4): - answer-1. General information about the operating segment. 2. Information about reported segment profit or loss, including certain revenues and expenses included in reported segment profit or loss, segment assets, and the basis of measurement. 3. Reconciliations of the totals of segment revenues, reported profit or loss, assets, and other significant items to corresponding enterprise amounts. 4. Interim period information. U.S. GAAP requires an enterprise to report certain geographic information unless it is impracticable to do so. This information includes (2): - answer-1. Revenues from external customers: -(a.) Attributed to the enterprise's country of domicile -(b.) Attributed to all foreign countries in total from which the enterprise derives revenues 2. Long-lived assets other than financial instruments, long-term customer relationships of a financial institution, mortgage and other servicing rights, deferred policy acquisition costs, and deferred tax assets (1) located in the enterprise's country of domicile and (2) located in all foreign countries in total in which the enterprise holds assets Information About Major Customers - answer-If 10% or more of the revenue of an enterprise is derived from transactions with a single customer, the enterprise must disclose that fact, along with: 1. Total amount of revenue from each such customer 2. Identity of the operating segment or segments reporting the revenue *The identity of the major customer or customers need not be disclosed, but companies routinely provide that information. International Financial Reporting Standards: Segment Reporting - answer--U.S. GAAP requires companies to report information about reported segment profit or loss, including certain revenues and expenses, segment assets, and the basis of measurement -IFRS requires that companies also disclose total liabilities of its reportable segments in addition to the U.S. GAAP item requirements 10. When a company pays its bill from a plumber for previous services on account: - answer-A. Its debt to equity ratio always decreases. Chapter 4 - answer-The Income Statement, Comprehensive Income, and the Statement of Cash Flows Recognition of Expenses - answer-When recognizing expenses, we attempt to establish a causal relationship between revenues and expenses. If causality can be determined, expenses are reported in the same period that the related revenue is recognized. If a causal relationship cannot be established, we relate the expense to a particular period, allocate it over several periods, or expense it as incurred. Single-Step Income Statement - answer-The single-step format first lists all the revenues and gains included in income from continuing operations. Then, expenses and losses are grouped, subtotaled, and subtracted—in a single step—from revenues and gains to derive income from continuing operations. In a departure from that, though, companies usually report income tax expense in a separate line in the statement. Operating and nonoperating items are not separately classified. Multi-Step Income Statement - answer--Separately classifies income statement items by operating and non-operating -Reports a series of intermediate subtotals -The multiple-step format reports a series of intermediate subtotals such as gross profit, operating income, and income before taxes. Most of the real-world income statements are in this format. A primary advantage of the multiple-step format is that, by separately classifying operating and nonoperating items, it provides information that might be useful in analyzing trends. Similarly, the classification of expenses by function also provides useful information. It is important to note that the difference between the single-step and multiple-step income statement is one of presentation. The bottom line, net income, is the same regardless of the format used. Most companies use the multiple-step format. US GAAP Income Statement Presentation - answer--Has no minimum requirements. -SEC requires that expenses be classified by function. -"Bottom line" called net income or net loss. -Report extraordinary items separately. IFRS Income Statement Presentation - answer--Specifies certain minimum information to be reported on the face of the income statement. -Allows expenses classified by function or natural description. -"Bottom line" called profit or loss. -Prohibits reporting extraordinary items. Temporary Earnings - answer-Earnings from transactions that are: 1. Not likely to occur again in the foreseeable future 2. Likely to have a different impact on earnings in the future Permanent Earnings - answer-Result from transactions likely to generate similar profits in the future Permanent earnings relate to operations that are expected to generate similar profits in the future. Analysts begin their assessment of permanent earnings with income before discontinued operations, that is, income from continuing operations. It would be a mistake, though, to assume that all items included in income from continuing operations reflect permanent earnings. Some income items that fall under this category may be temporary. In a sense, the label continuing may be misleading. Restructuring Costs - answer-costs associated w/ management's plans to materially change the scope of business operations Recognized in the period the exit or disposal cost obligation actually is incurred Examples: -Termination benefits payable to employees to be terminated: --To be accrued in the period(s) the employees render their service -Costs associated with closing facilities: --Recognized when services or goods associated with those activities are received Restructuring Costs (Cont.) - answer-Because it usually takes considerable time to sell or terminate a line of business, or to close a location or facility, many restructuring costs represent long-term liabilities. GAAP requires initial measurement of these liabilities to be at fair value, which often is determined as the present value of future estimated cash outflows. Companies also are required to provide many disclosures in the notes, including the years over which the restructuring is expected to take place. Now that we understand the nature of restructuring costs, we can address the important question: Should financial statement users attempting to forecast future earnings consider these costs to be part of a company's permanent earnings stream, or are they unlikely to occur again? There is no easy answer. For example, Hershey has reported some amount of restructuring costs in each year from . Will the company incur these costs again in the near future? Probably. A recent survey reports that of the 500 companies surveyed, 40% included restructuring costs in their income statements. The inference: a financial statement user must interpret restructuring charges in light of a company's past history and financial statement note disclosures which outline the plan and the period over which it will take place. In general, the more frequently these sorts of unusual charges occur, the more appropriate it is that financial statement users include them in their estimation of the company's permanent earnings stream. Non-Operating Items - answer-Most of the components of earnings in an income statement relate directly to the ordinary, continuing operations of the company. Some, though, such as interest and gains or losses on the sale of investments or property are only tangentially related to normal operations. These we refer to as nonoperating items. How should these items be interpreted in terms of their relationship to future earnings? Are these expenses likely to occur again next year? Investors need to understand that some of these items may recur, such as interest expense, while others are less likely to recur, such as gains and losses. Non-GAAP Earnings - answer-Companies are required to report earnings based on Generally Accepted Accounting Principles (GAAP). This number includes all revenues and expenses. Most companies, however, also voluntarily provide non-GAAP earnings when they announce annual or quarterly earnings. Non-GAAP earnings exclude certain expenses and sometimes certain revenues. Common expenses excluded are restructuring costs, acquisition costs, write-downs of impaired assets, and stock-based compensation. Supposedly, non-GAAP earnings are management's view of "permanent earnings," in the sense of being a better long-run measure of its company's performance. Nearly all major companies report non-GAAP earnings. Non-GAAP earnings are controversial because determining which expenses to exclude is at the discretion of management. By removing certain expenses from reported non-GAAP earnings, management has the potential to report misleadingly higher profits. The Sarbanes-Oxley Act addressed non-GAAP earnings in its Section 401. One of the act's important provisions requires that if non-GAAP earnings are included in any periodic or other report filed with the SEC or in any public disclosure or press release, the company also must provide a reconciliation with earnings determined according to GAAP. Discontinued Operations - answer-Report Discontinued Operations when: 1. A component of an entity or group of components has been sold, disposed of, or is considered held for sale 2. Disposal represents a strategic shift that has, or will have, a major effect on a company's operations and financial results **Income or loss from discontinued operations is reported separately, below income from continuing operations Discontinued Operations (Cont.) - answer-Separate reporting includes taxes as well. The income tax expense associated with continuing operations ($400) is reported separately from the income tax of discontinued operations ($40). Also, in the case that there is a loss from discontinued operations, there would be an income tax benefit (instead of income tax expense); losses from discontinued operations are tax deductible and would reduce overall taxes owed, thereby providing a benefit. As part of the continuing process to converge U.S. GAAP and international standards, the FASB and IASB have developed a common definition and a common set of disclosures for discontinued operations. When the discontinued component is sold before the end of the reporting period, the income effects will include - answer-Income or loss from operations of the component from the beginning of the reporting period to the disposal date + Gain or loss on disposal of the component's assets The first element would consist primarily of income from daily operations of this discontinued component of the company. This would include typical revenues from sales to customers and ordinary expenses such as cost of goods sold, salaries, rent, and insurance. The second element includes gains and losses on the sale of assets, such as selling a building or office equipment of this discontinued component. These two elements can be combined or reported separately, net of their tax effects. If combined, the gain or loss component must be indicated. Reporting Discontinued Operations - when the component is HELD FOR SALE - answer-What if a company has decided to discontinue a component but, when the reporting period ends, the component has not yet been sold? If the situation indicates that the component is likely to be sold within a year, the component is considered "held for sale." In that case, the income effects of the discontinued operation still are reported, but the two components of the reported amount are modified as follows: 1. Income or loss from operations (revenues, expenses, gains, and losses) of the component from the beginning of the reporting period to the end of the reporting period. 2. An impairment loss if the book value (sometimes called carrying value or carrying amount) of the assets of the component is more than fair value minus cost to sell. The two income elements can be combined or reported separately, net of their tax effects. In addition, if the amounts are combined and there is an impairment loss, the loss must be disclosed, either parenthetically on the face of the statement or in a disclosure note. Basic EPS - answer-Basic EPS= (Net Income - Pref. Stock Dividends)/(Weighted average number of common shares outstanding) Comprehensive Income - answer-Comprehensive Income= Net Income + Other Comprehensive Income (OCI) OCI items: - answer--Net unrealized holdings, gains, and losses on investments -Gains (losses) from postretirement benefit plans -Deferred gains (losses) from derivatives -Foreign currency translation adjustment CFs from Operating Activities - answer-Inflows: -Sale of goods and services -Interest and dividends received from investments Outflows: -Purchase of inventory -Salaries, wages, and other operating expenses -Income taxes US GAAP on Statement of Cash Flows - answer-Operating Activities: -Dividends Received -Interest Received -Interest Paid Financing Activities: -Dividends Paid IFRS on Statement of Cash Flows - answer-Investing Activities: -Dividends Received -Interest Received Financing Activities: -Dividends Paid -Interest Paid Asset Turnover Ratio - answer-Asset Turnover= Net Sales/Average Total Assets Receivables Turnover Ratio - answer-Receivables Turnover= Net Sales/Average A/R (net) Inventory Turnover Ratio - answer-Inventory Turnover= COGS/Average Inventory Average Collection Period - answer-Average Collection Period= 365/Receivables Turnover Average Days in Inventory - answer-Average Days in Inventory= 365/Inventory turnover ratio Profit Margin on sales - answer-Profit Margin= Net Income/Net Sales Return on Assets - answer-Return on Assets= Net Income/Average Total Assets Return on Shareholders' Equity - answer-Return on Shareholders' Equity= Net Income/Average Shareholders' Equity Finding Cash Outflows for A LIABILITY account - answer-BB + Expense - Cash Outflow = EB 18. An extraordinary event for financial reporting purposes is both: - answer-D. Unusual and Infrequent 20. Comprehensive income is the change in equity from: - answer-B. Nonowner Transactions New revenue recognition standard by FASB: - answer-Core Principle: Companies recognize revenue when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods and services -When: upon transfer to customers -How much: amount the seller is entitled to receive Revenue Recognition - 5 Steps - answer-1. Identify the contract 2. Identify the Performance Obligations 3. Determine the transaction price 4. Allocate the transaction price 5. Recognize revenue when (or as) each performance obligation is satisfied Revenue is recognized over a period of time if one of the following three conditions hold: - answer-1. The customer consumes the benefit of the seller's work as it is performed (example: a cleaning service) 2. The customer controls the asset as it is created (example: constructing a building extension) 3. The seller is creating an asset that has no alternative use to the seller and the seller has the legal right to receive payment for progress to date even if the contract is cancelled (example: an order of jets customized for the U.S. Air Force) If the performance obligation doesn't meet any of three criteria for recognizing revenue over time: - answer-Recognize revenue at the point in time when the performance obligation has been completely satisfied Usually occurs at the end of the contract To recognize revenue over time, a seller needs to estimate progress towards completion (2 Methods) - answer-1. Output-based Estimate: -Measured as the proportion of the goods or services transferred to date 2. Input-based Estimate: -Measured as the proportion of effort expended thus far relative to the total effort expected to satisfy the performance obligation Step 4: Allocate the Transaction Price to Each Performance Obligation - answer--Essentially take a weighted average of each product's stand-alone selling price in relation to the combined price of both stand-alone items ex: Tri-Box: $240 Tri-Net: $60 Total: $300 Tri-Box Weight = $240/$300 - 80% Tri-Net Weight = $60/$300 - 20% Package Deal Price: $250 So, allocation of price is as follows: Tri-Box = .8 * $250 - $200 Tri-Net = .2 * $250 - $50 Cost-to-Cost Ratio= - answer-Cost-to-Cost Ratio= Cost Incurred to Date/Estimated Total Cost Revenue Recognized to Date= - answer-Rev. Recognized to Date= Estimated Total Revenue * Cost-to-Cost Ratio Gross Profit= - answer-Gross Profit = Current Period Revenue - Current Costs CIP= - answer-CIP = Costs Incurred + Gross Profit Billings on construction - answer-Contra Asset Portion of CIP owned by the client