Question
In: Accounting
On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a...
On February 1, 2018, Arrow Construction Company entered into a
three-year construction contract to build a bridge for a price of
$8,100,000. During 2018, costs of $2,040,000 were incurred, with
estimated costs of $4,040,000 yet to be incurred. Billings of
$2,548,000 were sent, and cash collected was $2,290,000.
In 2019, costs incurred were $2,548,000 with remaining costs
estimated to be $3,660,000. 2019 billings were $2,798,000, and
$2,515,000 cash was collected. The project was completed in 2020
after additional costs of $3,840,000 were incurred. The company’s
fiscal year-end is December 31. This project does not qualify for
revenue recognition over time.
Required:
1. Calculate the amount of revenue and gross
profit or loss to be recognized in each of the three years.
2a. Prepare journal entries for 2018 to record the
transactions described (credit "various accounts" for construction
costs incurred).
2b. Prepare journal entries for 2019 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, 2018.
3b. Prepare a partial balance sheet to show the
presentation of the project as of December 31, 2019.
|
Year |
Revenue Recognized |
Gross Profit (Loss) Recognized |
|
2018 |
||
|
2019 |
-148000 |
|
|
2020 |
||
|
Total |
2018/
|
Record the construction costs. |
|
Record the progress billings. |
|
Record the cash collections. |
|
Record the expected loss. |
2019/
|
Record the construction costs. |
|
Record the progress billings. |
|
Record the cash collections. |
|
Record the expected loss. |
|
Balance Sheet |
|
At December 31, 2018 |
|
Current Assets: |
|
Current Liabilities: |
|
Balance Sheet |
|
At December 31, 2019 |
|
Current Assets: |
|
Current Liabilities: |
Solutions
Expert Solution
| Percentage completion method | 2018 | 2019 | 2020 | |
| Cost incurred in till previous year | 0 | 2040000 | 4588000 | |
| ADD | Cost incurred during the year | 2040000 | 2548000 | 3840000 |
| Total cost incurred till date | 2040000 | 4588000 | 8428000 | |
| ADD | Estimated cost to be incurred | 4040000 | 3660000 | 0 |
| Total estimated cost to be incurred | 6080000 | 8248000 | 8428000 | |
| Percentage of completion (A) | 34% | 55.63% | 100% | |
| (cost incurred till date /total estimated cost ) | ||||
| Total revenue (B) | 8100000 | 8100000 | 8100000 | |
| Total revenue recognized (A *B) | 2717763 | 4505674 | 8100000 | |
| Less | Revenue recognized in previous year | 0 | 2717763 | 4505674 |
| revenue recognized in current year | 2717763 | 1787911 | 3594326 | |
| 2018 | 2019 | 2020 | ||
| Revenue | 2717763 | 1787911 | 3594326 | |
| Less | Cost incurred | 2040000 | 2548000 | 3840000 |
| Gross profit | 677763 | -760089 | -245674 | |
| 2018 | ||||
| 1 | Construction in progress | 2040000 | ||
| Accounts payable | 2040000 | |||
| 2 | Contracts receivable | 2548000 | ||
| Progress billings | 2548000 | |||
| 3 | Construction in progress | 677763 | ||
| Construction expense | 2040000 | |||
| Construction revenue | 2717763 | |||
| 4 | Cash | 2290000 | ||
| Contract receivable | 2290000 | |||
| 2019 | ||||
| 1 | Construction in progress | 2548000 | ||
| Accounts payable | 2548000 | |||
| 2 | Contracts receivable | 2798000 | ||
| Progress billings | 2798000 | |||
| 3 | Construction expense | 2548000 | ||
| Construction in progress | 760089 | |||
| Construction revenue | 1787911 | |||
| 4 | Cash | 2515000 | ||
| Contract receivable | 2515000 | |||
| Partial balance sheet | ||||
| Asset | 2018 | 2019 | ||
| Contract receivable | 258000 | 541000 | ||
| Cash | 2290000 | 4805000 | ||
| Net contruction in progress | 2717763 | 4505674 | ||
| Liabilities | ||||
| Accounts payable | 2040000 | 4588000 | ||
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