Assume Nortel Networks contracted to provide a customer with Internet infrastruc

Question

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,860,000. The project began in 2018 and was completed in 2019. Data relating to the contract are summarized below: 2018 2019 Costs incurred during the year Estimated costs to complete as of 12/31 Billings during the year Cash collections during the year $ 372,000 $2,235,000 1,488,000 530,000 1,800,000 286,000 1,840,000 Required 1. Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming Nortel recognizes revenue over time according to percentage of completion 2.Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming this project does not qualify for revenue recognition over time 3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming Nortel recognizes revenue over time according to percentage of completion 4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming this project does not qualify for revenue recognition over time. Complete this question by entering your answers in the tabs below.

Explanation / Answer

1) Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming Nortel recognizes revenue over time according to percentage of completion. (Use percentages as calculated and rounded in the table below to arrive at your final answer. Losses and expenses should be indicated with a minus sign.) 2018 2019 Contract Price (a) $2,860,000.00 $2,860,000.00 Actual Costs to date $372,000.00 $2,607,000.00 Estimated costs to complete $1,488,000.00 $0.00 Total Estimated Cost (b) $1,860,000.00 $2,607,000.00 Estimated total gross profit (loss) (a - b) $1,000,000.00 $253,000.00 Actual cost to date 2019 = $372,000 + $2,235,000 $2,607,000.00 Percentages of completion Choose numerator ÷ Choose denominator = % complete to date Actual Costs to date Estimated Total cost 2018 $372,000.00 ÷ $1,860,000.00 = 20.00% 2019 $2,607,000.00 ÷ $2,607,000.00 = 100.00% 2018 To date Recognized in prior years Recognized in 2018 Construction revenue ($2,860,000 x 20%) $572,000.00 $572,000.00 Construction expense -$372,000.00 -$372,000.00 Gross profit (loss) $200,000.00 $200,000.00 2019 To date Recognized in prior years Recognized in 2019 Construction revenue $2,860,000.00 $572,000.00 $2,288,000.00 Construction expense -$2,607,000.00 -$372,000.00 -$2,235,000.00 Gross profit (loss) $253,000.00 $200,000.00 $53,000.00 2) Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming this project does not qualify for revenue recognition over time. Revenue Gross Profit (Loss) 2018 0 0 (contract not yet completed) 2019 $2,860,000.00 $253,000.00 3) Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming Nortel recognizes revenue over time according to percentage of completion. Balance sheet (Partial ) At December 31, 2018 Current Assets: Accounts Receivables $244,000.00 Costs and Profits Costs ($372,000) + profit ($200,000) Excess of Billing ($530,000) $42,000.00 Cash 0 Current Liabilities 4) Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming this project does not qualify for revenue recognition over time. Balance sheet (Partial ) At December 31, 2018 Current Assets Accounts Receivables $244,000.00 Current Liabilities Billings ($530,000) in excess of costs ($372,000) $158,000.00

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