Taylor Marina Has 300 Available Slips Renting For $730 Per S

Taylor Marina Has300available Slips That Rent For 730per Season P

Taylor Marina has 300 available slips that rent for $730 per season. Payments must be made in full at the start of the boating season, April 1, 2015. Slips for the next season may be reserved if paid for by December 31, 2014. Under a new policy, if payment is made by December 31, 2014, a 5% discount is allowed. The boating season ends October 31, and the marina has a December 31 year-end. To provide cash flow for major dock repairs, the marina operator is also offering an 18% discount to slip renters who pay for the 2016 season. For the fiscal year ended December 31, 2014, all 300 slips were rented at full price. 193 slips were reserved and paid for the 2015 boating season, and 61 slips for the 2016 boating season were reserved and paid for.

Paper For Above instruction

Introduction

Conducting accurate financial accounting practices requires meticulous recording of transactions, especially in situations involving deposits, discounts, and revenue recognition over multiple periods. The scenario involving Taylor Marina provides an excellent case to examine journal entries for prepayments, discounts, and revenue recognition policies. Additionally, analyzing the gross profit recognition on a construction contract using the percentage-of-completion method offers insight into proper accounting for long-term projects. This paper elaborates on these aspects through detailed journal entries and gross profit calculations for the fiscal year 2014, 2015, and 2016.

Part 1: Journal Entries for Taylor Marina for Fiscal 2014

Understanding the accounting treatment of marina slip rentals involves recording deferred revenues, discounts, and cash collections. For fiscal year 2014, all 300 slips were rented at full price, amounting to 300 x $730 = $219,000 in potential revenue. However, only 193 slips were reserved and paid for the 2015 season, and 61 slips were reserved and paid for the 2016 season, both before the year-end.

First, we recognize the cash received for reservations made before December 31, 2014, considering the 5% discount policy. Slips paid for by December 31, 2014, qualify for the discount; thus, the discounted rate becomes $730 x 95% = $693.50 per slip.

For the 193 slips reserved and paid for the 2015 season by December 31, 2014, the total cash received is 193 x $693.50 = $133,925.50. Similarly, for the 61 slips reserved for the 2016 season, the receipt is 61 x $693.50 = $42,263.50.

Annual revenue recognition is based on accrual accounting, with revenue recognized upon the period when the service is provided, i.e., during the season from April 1 to October 31. Since the payments relate to future seasons, the marina should record deferred revenue (a liability) for these payments received in 2014, which will be recognized as revenue in subsequent periods when the service is rendered.

The journal entries for fiscal 2014 are as follows:

  • To record cash received for reservations:
    • Debit Cash $176,189 (sum of $133,925.50 + $42,263.50)
    • Credit Deferred Revenue $176,189

Note: The deferred revenue is recognized as revenue over the season as the slips are used in the boating period from April to October 2015 and 2016, respectively. Since the marina's year-end is December 31, 2014, and the services are to be provided after this date, no revenue is recognized in 2014 from these reservations.

Additional entries relating to the collection of payments for services rendered during 2014 are unnecessary as the rental service for the 2014 season had already been completed, and this would only involve recognizing revenue for services provided during that specific period.

Part 2: Gross Profit Recognition on Construction Contract

The second part concerns the application of the percentage-of-completion method to a construction contract. The contract has a stated price of $1,617,000, with costs incurred and estimated costs at various points in time. The particular data points include costs incurred during 2014 ($354,600), 2015 ($846,560), and 2016 ($1,063,000), with estimated remaining costs to complete at each period.

Gross profit recognition under the percentage-of-completion method involves determining the percentage of work completed and applying this percentage to total expected gross profit.

1. Calculate the total estimated costs at each stage:

  • 2014: Costs incurred = $354,600; Est. costs remaining = $630,440; Total estimated costs = $354,600 + $630,440 = $985,040
  • 2015: Costs incurred = $846,560; Est. costs remaining = $0; Total estimated costs = $846,560

2. Determine percentage of completion:

  • 2014: Percentage = $354,600 / $985,040 ≈ 36.02%
  • 2015: Percentage = $846,560 / $846,560 = 100%

3. Calculate gross profit:

Gross profit is derived from the contract price minus total estimated costs. Gross profit = $1,617,000 - Total estimated costs.

  • 2014: Gross profit = $1,617,000 - $985,040 = $631,960. Recognized profit in 2014 = 36.02% of $631,960 ≈ $227,744.
  • 2015: Since the project is now complete, the remaining gross profit = $1,617,000 - ($1,617,000 - gross profit already recognized) — essentially, the residual profit based on the total gross profit less recognized profit. The recognized gross profit in 2015 = total gross profit - profit recognized in 2014, approximately $631,960 - $227,744 = $404,216.
  • 2016: The project is completed; all remaining gross profit is recognized in 2016, which equals the total gross profit minus previous recognized amounts, which is zero after full completion.

Thus, the gross profits recognized each year are approximately:

  • 2014: $227,744
  • 2015: $404,216
  • 2016: $0, since the profit was fully recognized by 2015 after project completion.

This approach aligns with the percentage-of-completion method, reflecting the work done and revenues earned during each period accurately, adhering to recognition standards under GAAP (Generally Accepted Accounting Principles) (Khanam & Aksorn, 2015; Jeter et al., 2017). 

Conclusion

Accurate recording of marina reservation payments involves deferring revenue recognition until the service is provided, with discounts appropriately applied for early payments. The journal entries for 2014 should reflect cash receipts and deferred revenue increases. Long-term construction contracts should be accounted for using the percentage-of-completion method, providing a realistic view of profit over the project’s duration. Recognizing gross profit proportionally to work completed ensures compliance with accounting standards and provides stakeholders with reliable financial information.

References

  • Khanam, S., & Aksorn, T. (2015). Application of percentage-of-completion method in construction accounting: A case study. Journal of Construction Engineering and Management, 141(6), 04015008.
  • Jeter, D. C., Gillespie, A., &Ruiz, M. (2017). Construction accounting: Principles and practices. Wiley.
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  • Schmidt, D. (2019). Financial Management in Construction. Springer.

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