Your anawer is incorrect. Try again. Raynelds Custom Buildars (RCB) was attab ch

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Your anawer is incorrect. Try again. Raynelds Custom Buildars (RCB) was attab ched in 1997 by Avey Conway and initally bult high-qualty customized homes under contrac: with pecfic buyars. In the 2002, Conway's two sons oined tha company and axpanded RCBs ac the retireman of RCes lang-time financial manager, Conmays on recently hired Ed Barke as controller for RCB Borke, a former college friend of Conway's sons, hs been aced with a public accounting firm for the last 6 years Into the hich-rapartmenc and industrial plant maroats. Upon upon e e ng R 8's ecco nd industriel building areas. Fram land scquisition to the completion of constrution, most building contrects cover several years. Under the ercumstances, Borke believes thet RCB should fallow the percentage o-completion method of accounting. From a typical bulding contract. Barke develaped the ting p ect ces Bor ie observed that R o ovved the co p ere contract ethod o revenue ecognit on car y ver om the years hen n v duel ho me build ng as her 5 om y of RC 's operators. Severe yes, ego, the predom nemt po on o RC s ect ites shifted to he Contract price: $8.337.000 2014 Estimated costs $1.826.010 $2.705.200 $2.231.790 Progress billings Cash colletions1.775.000 2.8050 3.280.000 1,887,000 063.000 3.397.000 Using the dat rovided or the eueste Tractor Plant and assuming the percentage of completo er oo ofre enue eco ntion t used. ca cuote R gs evenue and gro55 profit for 2014, 2015 and 2016 under each ofthe follo ang orcu stances 1) Assume that- costs-r-meurred all bilings to customers-re made, and all collect ora em customers are ec-ne wahin 30 de s af billing, as pla ned. Round percentagof completion to 2 decanal aces, e g. 34.35% and finalamswers to Odenme places, og. 1 525. 2015 2 Furthe assum. that, k. result o un a_mn ocal crdinance" k d h-fact that the bui r sitev kain à completion to 2 decimal places, eg. 34.35% and final answers to 0 decimal places, .9-1,525.) e le d‘ area RCB experienced cast arruns o $875.000 n 2014 to brin th* sit-into compliance ith the on nances and to ave come et ands barriers to constru Raun an. P. centag. o 3063000 3) Fu eramme t at n 2ddcon to the cost overruns of S875 000 or :: contrat incurred under part 2 nflat onary 2co rs over and 300 e those noc pated in the deve op ent o e ongina contrat cost h e caused an octonal cost overrun o 51.076.000 in 2015 costo emns w occur in 2016 Round percentage o completion to 2 decima places, e g. 34.35% and final answers to 0 decrmal p ces, e g 1.525. Enter negatyve amounts using either negative sign preceding the number e -45 or parentheses e g t i: not anticpated th2t any 45N 2014 2015 2016

Explanation / Answer

(b) Using the data provided for the Bluestem Tractor Plant, and on the assumption that the percentage-of-completion method of revenue recog¬nition is used, the calculations of RCB’s revenue and gross profit for 2014, 2015, and 2016 under three sets of circumstances are presented below. 1 Assuming that all costs are incurred, all billings to customers are made, and all collections from customers are received within 30 days of billing, the RCB’s revenue, cost of sales, and gross profit for 2014, 2015, and 2016, are calculated as follows: Percentage-of-Completion Year Contract Price Costs to Date Estimated Total Costs Estimated Gross Profit (Col. 2–Col. 4) Percent Complete (Col. 3/Col. 4) (1) (2) (3) (4) (5) (6) 2014 $8,337,000 $1,826,010 $6,763,000* $1,574,000 27% 2015 8,337,000 4,531,210 6,763,000 1,574,000 67% 2016 8,337,000 6,763,000 6,763,000 1,574,000 100% *($1,826,010 + $2,705,200 + $2,231,790) Revenue recognition Year Contract Price Percent Complete Revenue      Recognizable Less Prior Year(s) Current Year 2014 $8,337,000 27% $2,250,990 — $2,250,990 2015 8,337,000 67% $5,585,790 $2,250,990 3,334,800 2016 8,337,000 100% $8,337,000 5,585,790 2,751,210 Profit recognition Year Estimated Profit Percent Complete Profit Recognizable Less Prior Year(s) Current Year 2014 $1,574,000 27% $424,980 — $424,980 2015 1,574,000 67% $1,054,580 $424,980 629,600 2016 1,574,000 100% $1,574,000 1,054,580 519,420 2 Assuming the same facts as in Instruction (b) 1., but that cost overruns of $875,000 were experienced in 2014, RCB’s revenue, cost of sales, and gross profit for 2014, 2015, and 2016 were calculated as follows: Percentage-of-Completion Year Contract Price Costs to Date Estimated Total Costs Estimated Gross Profit (Col. 2–Col. 4) Percent Complete (Col. 3/Col. 4) (1) (2) (3) (4) (5) (6) 2014 $8,337,000 $2,701,010 $7,638,000* $699,000 35.36% 2015 8,337,000 5,406,210 7,638,000 699,000 70.78% 2016 8,337,000 7,638,000 7,638,000 699,000 100.00% *($2,701,010 + $2,705,200 + $2,231,790) Revenue recognition Year Contract Price Percent Complete Revenue      Recognizable Less Prior Year(s) Current Year 2014 $8,337,000 35.36% $2,947,963 — $2,947,963 2015 8,337,000 70.78% $5,900,929 $2,947,963 $2,952,966 2016 8,337,000 100.00% $8,337,000 5,900,929 $2,436,071 Profit recognition Year Estimated Profit Percent Complete Profit Recognizable Less Prior Year(s) Current Year 2014 $699,000 35.36% $247,166 — $247,166 2015 699,000 70.78% $494,752 $247,166 247,586 2016 699,000 100.00% $699,000 494,752 204,248 3 Assuming the same facts as in Instructions (b) 1. and (b) 2., but that additional cost overruns of $1,076,000 are experienced in 2015, RCB’s revenue, cost of sales, and gross profit for 2014, 2015, and 2016 are calculated as follows: Percentage-of-Completion Year Contract Price Costs to Date Estimated Total Costs Estimated Gross Profit (Col. 2–Col. 4) Percent Complete (Col. 3/Col. 4) (1) (2) (3) (4) (5) (6) 2014 $8,337,000 $2,701,010 $7,638,000 $699,000 31.00% 2015 8,337,000 6,482,210* 8,714,000 -377,000 74.39% 2016 8,337,000 8,714,000 8,714,000 -377,000 100.00% *($5,406,210 + $1,076,000) Revenue recognition Year Contract Price Percent Complete Revenue      Recognizable Less Prior Year(s) Current Year 2014 $8,337,000 31.00% $2,584,470 — $2,584,470 2015 8,337,000 74.39% $6,201,894 $2,584,470 $3,617,424 2016 8,337,000 100.00% $8,337,000 6,201,894 $2,135,106 Profit recognition Year Estimated Profit Percent Complete Profit Recognizable Less Prior Year(s) Current Year 2014 $699,000 31.00% $216,690 — $216,690 2015 -377,000 100.00%a ($377,000) $216,690 -593,690 2016 -377,000 100.00% ($377,000) -377,000 0 aWhen there is a projected loss at any time, it must be recognized in full in the period in which a loss on the contract appears probable.

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