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Curtiss Construction Company, Inc., entered into a fixed-price contract with Axelrod Associates on July 1, 2018,...

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.

Solutions

Expert Solution

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

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