On February 1, 2016, Arrow Construction Company entered into a three-year constr
ID: 2417629 • Letter: O
Question
On February 1, 2016, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,570,000. During 2016, costs of $2,190,000 were incurred with estimated costs of $4,190,000 yet to be incurred. Billings of $2,690,000 were sent and cash collected was $2,440,000.
In 2017, costs incurred were $2,690,000 with remaining costs estimated to be $3,885,000. 2017 billings were $2,940,000 and $2,665,000 cash was collected. The project was completed in 2018 after additional costs of $3,990,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion
1) Compute the amount of revenue and gross profit or loss to be recognized in 2016, 2017, and 2018 using the percentage-of-completion method?
2) the percentage of completion for the 3 years
3) Prepare journal entries for 2016 to record the transactions described (credit "various accounts" for construction costs incurred)
4) Prepare journal entries for 2017 to record the transactions described (credit "various accounts" for construction costs incurred).
5) Prepare a partial balance sheet to show the presentation of the project as of December 31, 2016
6) Prepare a partial balance sheet to show the presentation of the project as of December 31, 2017
On February 1, 2016, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,570,000. During 2016, costs of $2,190,000 were incurred with estimated costs of $4,190,000 yet to be incurred. Billings of $2,690,000 were sent and cash collected was $2,440,000.
In 2017, costs incurred were $2,690,000 with remaining costs estimated to be $3,885,000. 2017 billings were $2,940,000 and $2,665,000 cash was collected. The project was completed in 2018 after additional costs of $3,990,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion
1) Compute the amount of revenue and gross profit or loss to be recognized in 2016, 2017, and 2018 using the percentage-of-completion method?
2) the percentage of completion for the 3 years
3) Prepare journal entries for 2016 to record the transactions described (credit "various accounts" for construction costs incurred)
4) Prepare journal entries for 2017 to record the transactions described (credit "various accounts" for construction costs incurred).
5) Prepare a partial balance sheet to show the presentation of the project as of December 31, 2016
6) Prepare a partial balance sheet to show the presentation of the project as of December 31, 2017
Explanation / Answer
Answer for point no.1:
For the year 2017:
For the year 2018:
Year Particulars Amount % of completion Revenue to be recognized on % of copletion basis Profit for year Total revenues 8570000 2941739.812 751739.8119 2016 Costs incurred 2190000 34.33% Costs yet to be incurred 4190000 65.67% Total costs for completion 6380000Related Questions
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