Question

On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,000,000. During 2021, costs of $2,000,000 were incurred with estimated costs of $4,000,000 yet to be incurred. Billings of $2,500,000 were sent, and cash collected was $2,250,000.

In 2022, costs incurred were $2,500,000 with remaining costs estimated to be $3,600,000. 2022 billings were $2,750,000, and $2,475,000 cash was collected. The project was completed in 2023 after additional costs of $3,800,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion.

Required:
1. Compute the amount of revenue and gross profit or loss to be recognized in 2021, 2022, and 2023 using the percentage of completion method.
2a. Prepare journal entries for 2021 to record the transactions described (credit "various accounts" for construction costs incurred).
2b. Prepare journal entries for 2022 to record the transactions described (credit "various accounts" for construction costs incurred).
3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2021.
3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2022.

Compute the amount of revenue and gross profit or loss to be recognized in 2021, 2022, and 2023 using the percentage of completion method. (Do not round intermediate calculations. Loss amounts should be indicated with a minus sign. Round your final answers to the nearest whole dollar.)

Percentages of completion Choose numerator ÷ Choose denominator = % complete to date Actual costs to date Estimated total costs 2021 $2,000,000 ÷ $6,000,000 = 33.3333% 2022 $4,500,000 ÷ $8,100,000 = 55.5556% 2023 $8,300,000 ÷ $8,300,000 = 100.0000% 2021 To date Recognized in prior years Recognized in 2021 Construction revenue $2,666,400 $0 $2,666,400 Construction expense $2,000,000 $0 $2,000,000 Gross profit (loss) $666,667 $0 $666,667 2022 To date Recognized in prior years Recognized in 2022 Construction revenue $4,444,800 $4,444,800 Construction expense $2,000,000 $(2,000,000) Gross profit (loss) $0 2023 To date Recognized in prior years Recognized in 2023 Construction revenue $8,000,000 $0 $8,000,000 Construction expense $8,300,000 $8,300,000 $0 Gross profit (loss) $0 $0 $0

Prepare journal entries for 2021 to record the transactions described (credit "various accounts" for construction costs incurred). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

No	Year	General Journal	Debit	Credit
1	2021	Construction in progress	2,000,000
		Various accounts		2,000,000
2	2021	Accounts receivable	2,500,000
		Billings on construction contract		2,500,000
3	2021	Cash	2,500,000
		Accounts receivable		2,500,000
4	2021	Cost of construction	2,544,445
		Construction in progress		1,777,778
		Revenue from long-term contracts		766,667

Answer 1