Question

Curtiss Construction Company, Inc., entered into a fixed-price contract with Axelrod Associates on July 1, 2021, 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 $4,000,000. Curtiss concludes that the contract does not qualify for revenue recognition over time. The building was completed on December 31, 2023. 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:

 

Required:
1. For each of the three years, prepare a schedule to compute total gross profit or loss to be recognized as a result of this contract.
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 2021 and 2022 as either cost in excess of billings or billings in excess of costs.

 

Answer 1

Requirement 1

                                                              2021               2022                2023

  Contract price                            $4,000,000      $4,000,000       $4,000,000

  Actual costs to date                        350,000        2,500,000        4,250,000

  Estimated costs to complete     3,150,000        1,700,000                 - 0 -

  Total estimated costs                  3,500,000        4,200,000        4,250,000

  Estimated gross profit (loss)

   (actual in 2023)                           $ 500,000       $ (200,000)       $(250,000)

 

 

Year	Gross profit (loss) recognized
2021	- 0 -
2022	$(200,000)
2023	(50,000)
Total project loss	$(250,000)

Requirement 2

 

            Gross profit (loss) recognition:

 

       2021:    Revenue: (10% × $4,000,000) – $350,000 cost = $50,000

 

       2022:    $(200,000) – $50,000 = $(250,000)

 

       2023:    $(250,000) – $(200,000) = $(50,000)

 

Requirement 3

 

Balance Sheet	2021		2022
Current assets:
Costs less loss ($2,300,000*) in  excess of billings ($2,170,000)			$ 130,000
Current liabilities:
Billings ($720,000)in excess  of costs and profit ($400,000)	$ 320,000

 

*Cumulative costs ($2,500,000) less cumulative loss recognized ($200,000) = $2,300,000

urrent liabilities:
Billings ($720,000)in excess  of costs and profit ($400,000)	$ 320,000