Question

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,750,000. 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	$	360,000		$	2,155,000
Estimated costs to complete as of 12/31		1,440,000			0
Billings during the year		500,000			1,770,000
Cash collections during the year		445,000			1,825,000

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.

omplete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3
• Required 4

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 ÷ = 0 2022 ÷ = 0 2021 To date Recognized in prior years Recognized in 2021 Construction revenue $0 Construction expense $0 Gross profit (loss) $0 2022 To date Recognized in prior years Recognized in 2022 Construction revenue $0 Construction expense $0 Gross profit (loss) $0

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:

repare 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

Part 1

	Revenue	Gross profit
2021	600000	268000
2022	1800000	(50000)

		Percentages of completion
	Choose numerator	÷	Choose denominator	=	% complete to date
	Actual costs to date	÷	Estimated total costs
2021	360000	÷	1440000	=	25%
2022	2515000	÷	2515000	=	100%

360000+2155000 = 2182000

	2021
	To date	Recognized in prior years	Recognized in 2021
Construction revenue	687500		687500
Construction expense	(360000)		(360000)
Gross profit (loss)	327500		327500

Revenue = (360000/1440000)*2750000 = 687500

	2022
	To date	Recognized in prior years	Recognized in 2022
Construction revenue	2750000	687500	2062500
Construction expense	(2515000)	(360000)	(2155000)
Gross profit (loss)	235000	327500	(92500)

Part 2

	Revenue	Gross profit
2021
2022	2750000	235000

Gross profit = 2750000-2515000 = 235000

Part 3

Balance sheet (partial)

At the December 31, 2021

Current assets:
Accounts receivable (500000-445000)	55000
Costs and profit in excess of billings (360000+327500)-500000	187500
Current liabilities:

Part 4

Balance sheet (partial)

At the December 31, 2021

Current assets:
Accounts receivable (500000-445000)	55000
Current liabilities:
Billings in excess of costs (500000-360000)	140000