Question

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,100,000. The project began in 2021 and was completed in 2022. Data relating to the contract are summarized below:

	2021			2022
Costs incurred during the year	$	308,000		$	1,615,000
Estimated costs to complete as of 12/31		1,232,000			0
Billings during the year		390,000			1,640,000
Cash collections during the year		270,000			1,760,000

Required:
1. Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming Nortel recognizes revenue over time according to percentage of completion.
2. Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming this project does not qualify for revenue recognition over time.
3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming Nortel recognizes revenue over time according to percentage of completion.
4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming this project does not qualify for revenue recognition over time.

Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming Nortel recognizes revenue over time according to percentage of completion. (Loss amounts should be indicated with a minus sign. Use percentages as calculated and rounded in the table below to arrive at your final answer.)

	Percentages of completion Choose numerator ÷ Choose denominator = % complete to date 2021 ÷ = 2022 ÷ = 2021 To date Recognized in prior years Recognized in 2021 Construction revenue Construction expense Gross profit (loss) 2022 To date Recognized in prior years Recognized in 2022 Construction revenue Construction expense Gross profit (loss)

Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming this project does not qualify for revenue recognition over time. (Loss amounts should be indicated with a minus sign.)

	Revenue Gross Profit (Loss) 2021 2022

Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming Nortel recognizes revenue over time according to percentage of completion.

	Balance Sheet (Partial) At December 31, 2021 Current assets: Current liabilities:

Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming this project does not qualify for revenue recognition over time.

	Balance Sheet (Partial) At December 31, 2021 Current assets: Current liabilities:

Answer 1

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Requirement 1
		2,021	2,022
Contract price		$                                  2,100,000	$                                  2,100,000
Actual costs to date		$                                     308,000	$                                  1,615,000
Estimated costs to complete		$                                  1,232,000	$                                                 -
Total estimated costs		$                                  1,540,000	$                                  1,615,000
Gross profit (estimated in 2018)		$                                     560,000	$                                     485,000
Percentage Completion:
	Actual Cost to Date	Total Estimated Cost	% Completion to date
Year 2021	$                                                          308,000	$                                  1,540,000	20.00%
Year 2022	$                                                       1,615,000	$                                  1,615,000	100.00%
Year 2021
		To date	Recognized in prior years	Recognized in 2021
Construction revenue	$2,100,000*20%	$                                     420,000	$                                                 -	$                         420,000
Construction expense		$                                     308,000	$                                                 -	$                         308,000
Gross profit (loss)		$                                     112,000	$                                                 -	$                         112,000
Year 2022
		To date	Recognized in prior years	Recognized in 2022
Construction revenue	$2,100,000*100%	$                                  2,100,000	$                                     420,000	$                     1,680,000
Construction expense		$                                  1,615,000	$                                     308,000	$                     1,307,000
Gross profit (loss)		$                                     485,000	$                                     112,000	$                         373,000
Requirement 2
		Year 2021	Year 2022
Construction revenue		$                                                 -	$                                  2,100,000
Construction expense		$                                                 -	$                                  1,615,000
Gross profit (loss)		$                                                 -	$                                     485,000
Requirement 3
Current Assets:
Accounts Receivable	$390,000-$270,000	$                                     120,000
Cost and Profit in excess of billing:
Cost and Profit ($308,000+$112,000)	$                                                          420,000
Billing	$                                                        (390,000)	$                                        30,000
Requirement 4
Current Assets:
Accounts Receivable	$390,000-$270,000	$                                     120,000
Billing in excess of cost
Billing	$                                                          390,000
Cost	$                                                        (308,000)	$                                        82,000