HELLO, PLEASE HELP ME WITH THIS QUESTION!!! I NEED HELP WITH 3,4 and 6 Questions
ID: 2498427 • Letter: H
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HELLO, PLEASE HELP ME WITH THIS QUESTION!!! I NEED HELP WITH 3,4 and 6 Questions!!!! Waiting for the answer. Thank you so much!!!!!
Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructed under contract with reputable buyers. The homes are constructed in developments ranging from 10–20 homes and are typically sold during construction or soon after. To secure the home upon completion, buyers must pay a deposit of 5% of the price of the home with the remaining balance due upon completion of the house and transfer of title. Failure to pay the full amount results in forfeiture of the down payment. Occasionally, homes remain unsold for as long as three months after construction. In these situations, sales price reductions are used to promote the sale.
During 2013, Citation began construction of an office building for Altamont Corporation. The total contract price is $19 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows:
2013
2014
2015
Costs incurred during the year
$
2,926,000
$
10,124,000
$
4,350,000
Estimated costs to complete as of year-end
12,474,000
4,350,000
—
Billings during the year
1,400,000
11,600,000
6,000,000
Cash collections during the year
1,260,000
8,060,000
9,680,000
Also during 2013, Citation began a development consisting of 12 identical homes. Citation estimated that each home will sell for $540,000, but individual sales prices are negotiated with buyers. Deposits were received for eight of the homes, three of which were completed during 2013 and paid for in full for $540,000 each by the buyers. The completed homes cost $396,000 each to construct. The construction costs incurred during 2013 for the nine uncompleted homes totaled $2,640,000.
3.
Answer the following questions assuming that Citation uses the percentage-of-completion method for its office building contracts.
a.
What is the amount of gross profit or loss to be recognized for the Altamont contract during 2013 and 2014????
b.
How much revenue related to this contract will Citation report in its 2013 and 2014 income statements????
c.
What will Citation report in its December 31, 2013, balance sheet related to this contract (ignore cash)?
Current asset:
Account Receivable?????
Cost and profit on excess in billings???
4.
Assume that as of year-end 2014 the estimated cost to complete the office building is $8,700,000 and that Citation uses the percentage-of-completion method.
a.
What is the amount of gross profit or loss to be recognized for the Altamont contract during 2014???
b.
How much revenue related to this contract will Citation report in the 2014 income statement????
c.
What will Citation report in its 2014 balance sheet related to this contract (ignore cash)????
Current asset:
Account receivable????
Current liabilities:
Billing in excess of cost and profit????
5.
Which method of accounting should Citation Builders, Inc adopt for its single-family houses?
Completed contract method
Percentage-of-completion method
6.
What will Citation report in its 2013 income statement and 2013 balance sheet related to the single-family home business (ignore cash in the balance sheet)?
Income statement
Gross profit????
Balance sheet:
Current assets:
Inventory (work in process)????????
Current liabilities:
Customer deposit or unearned revenue????????
Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructed under contract with reputable buyers. The homes are constructed in developments ranging from 10–20 homes and are typically sold during construction or soon after. To secure the home upon completion, buyers must pay a deposit of 5% of the price of the home with the remaining balance due upon completion of the house and transfer of title. Failure to pay the full amount results in forfeiture of the down payment. Occasionally, homes remain unsold for as long as three months after construction. In these situations, sales price reductions are used to promote the sale.
During 2013, Citation began construction of an office building for Altamont Corporation. The total contract price is $19 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows:
Explanation / Answer
Total Contract Price= 19 Million
Total Estimated Contract Cost= 15.4 Million
% of Completion of Contract in 2013= Total Cost Incurred / Total Estimated Contract cost
=$29,26,000/15,400,000
=19%
Total Gross Profit= 19,000,000-15,400,000
=36,00,000
Gross Profit to be recognised in 2013= 36,00,000*19%
=$684,000
Total Estimated Cost in 2014= $10,124,000+$4,350,000
=$14,474,000
Total Gross Profit estimated= $190,000,000-14,474,000
=$45,26,000
% Completed= $1,01,24,000/$1,44,74,000
=69.95%
Gross Profit to be recognised = $45,26,000*69.95%=$31,65,760
Gross Profit to be recognised in 2014= 31,65,760-6,84,000
=$24,81,760
In 2013 19% of work is completed so for that contract the revenue recognised will be 19% of the contract value which comes t0
$1,90,00,000*19% =$36,10,000
In 2014 69.95% of Work is completed so revenue to be recongised = $1,90,00,000*69.95%-$36,10,000
=$96,80,500
Account receivable = Billings made-cash received
=$14,00,000-$12,60,000
=$140,000
Excess Billinngs to be made= $36,10,000-$14,00,000
=$22,10,000
Cost in the Billings to be made= $22,10,000*$1,54,00,000/$1,90,00,000
=$17,91,263
Profit in the Billing to be made= $22,10,000-$17,91,263
=$4,18,437
4 If at the end of the 2014 estimated cost to complete the project is 87,00,000
then the Total Cost of Contract = $1,01,24,000+87,00,000
=1,88,24,000
% of completion = 1,01,24,000/1,88,24,000
=53.78%
Total Revenue to be recognised= ($1,90,00,000*53.78%)-36,10,000
=66,08,2000
Total Cost to be recognised= $1,01,24,000-$29,26,000
=72,00,000
Total Gross Profit (Loss) to be recognised in 2014= ($72,00,000-66,08,200)-6,84,000
=($92,200)
5 Accounts receivable in Balance Sheet will be ($1,40,000+$1,16,00,000-$80,60,000)
($36,80,000)
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