Question

Curtiss Construction Company, Inc., entered into a fixed-price contract with Axelrod Associates on July 1, 2018, to construct a four-story office building. At that time, Curtiss estimated that it would take between two and three years to complete the project. The total contract price for construction of the building is $5,020,000. Curtiss concludes that the contract does not qualify for revenue recognition over time. The building was completed on December 31, 2020. Estimated percentage of completion, accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Axelrod under the contract were as follows:

	At 12-31-2018				At 12-31-2019				At 12-31-2020
Percentage of completion		10	%			60	%			100	%
Costs incurred to date	$	376,000			$	3,234,000			$	5,457,000
Estimated costs to complete		3,384,000				2,156,000				0
Billings to Axelrod, to date		737,000				2,510,000				5,020,000

Required:
1. Compute gross profit or loss to be recognized as a result of this contract for each of the three years.
2. Assuming Curtiss recognizes revenue over time according to percentage of completion, compute gross profit or loss to be recognized in each of the three years.
3. Assuming Curtiss recognizes revenue over time according to percentage of completion, compute the amount to be shown in the balance sheet at the end of 2018 and 2019 as either cost in excess of billings or billings in excess of costs.

Answer 1

Required 1

	2018	2019	2020
Contract price	$5,020,000	$5,020,000	$5,020,000
Actual costs to date	$376,000	$3,234,000	$5,457,000
Estimated costs to complete	$3,384,000	$2,156,000	$0
Total estimated costs	$3,760,000	$5,390,000	$5,457,000
Estimated Gross profit	$1,260,000	($370,000)	($437,000)

Gross profit (loss) Recognized(up on completion)

Year 2018	$0
Year 2019	($370,000)
Year 2020	($67,000)
Total	($437,000)

Required 2.

Gross profit (loss) Recognized(Over time)

Year 2018($5,020,000×10% - $376,000)	$126,000
Year 2019[($370,000)-$126,000]	($244,000)
Year 2020[($244,000)-($370,000)	($126,000)

Balance sheet

	2018	2019
Current assets:
Costs less($2,864,000) in excess of billing $2,156,000		$708,000
Current liabilities
Billings ($737,000) in excess of cost and profit ($502,000)	$235,000

* Cumulative costs $3,234,000 less cumulative loss Recognized ($370,000) =$2,864,000

_____×_____

All the best