In: Accounting
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
$4,540,000. 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
$
368,000
$
2,898,000
$
4,889,000
Estimated costs to complete
3,312,000
1,932,000
0
Billings to Axelrod, to date
729,000
2,350,000
4,540,000
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.
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. (Leave no cells blank - be certain to enter "0" wherever required. Loss amounts should be indicated with a minus sign.)
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Year
Req 1 Gross Profit (Loss) Recognized ("Upon Completion")
Req 2 Gross Profit (Loss) Recognized ("Over Time")
2018
$0
$86,000
2019
$(290,000)
$(376,000)
2020
$(59,000)
$(86,000)
Total project profit (loss)
$(349,000)
$(376,000)
Req 3
2.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.
Balance Sheet (Partial)
2018
2019
Current assets:
Costs less loss in excess of billings
Current liabilities:
Billings in excess of costs and profit
$275,000
Please calculate Costs less loss in excess of billings in 2019.
Requirement 1.
Since the contract does not qualify for revenue recognition over time, revenue will be recognised when contract is completed i.e. in 2020. | |||||
Curtiss Construction Company | |||||
Requirement 1 | |||||
Year | Revenue Recogniseed | Gross Profit/(loss) recognised | |||
2018 | $0 | $0 | |||
2019 | $0 | -$290,000 | |||
2020 | $4,540,000 | -$59,000 | |||
Total | $4,540,000 | -$349,000 | |||
Notes: | |||||
1. There is no gain/loss recognised in 2018 since cost incurred plus estimated cost is less than contract price. | |||||
2. Loss for 2019 = ($4,540,000-$2,898,000-$1,932,000) i.e contract price minus (cost incurred plus estimated cost of completion)(Conservatism) | |||||
3. Loss for 2020 = [$4,540,000-$4,889,000-(-$290,000)] i.e. contract price minus Cost incurred minus loss already recognised. |
Requirement 2
Curtiss Construction Company | |||
Requirement 2 | |||
Year | Revenue Recogniseed | Cost incurred | Gross Profit/(loss) recognised |
2018 | $454,000 | $368,000 | $86,000 |
2019 | $2,270,000 | $2,530,000 | -$260,000 |
2020 | $1,816,000 | $1,991,000 | -$175,000 |
Total | $4,540,000 | $4,889,000 | -$349,000 |
Working Note
2018 | 2019 | 2020 | |
Cost incurred for the year | $368,000 | $2,530,000 | $1,991,000 |
% of Completion | 10.00% | 60.00% | 100.00% |
Requirement 3
Balance Sheet | |
as at December 31, 2018 | |
Particulars | $ |
Current Assets: | |
Cost less loss in excess of billing | $0 |
Current liabilities: | |
Billing in excess of cost and profit | $275,000 |
Balance Sheet | |
as at December 31, 2019 | |
Particulars | $ |
Current Assets: | |
Cost less loss in excess of billing | $374,000 |
Current liabilities: | |
Billing in excess of cost and profit | $0 |