On February 1, 2018, Arrow Construction Company entered into a three-year constr
ID: 2541098 • Letter: O
Question
On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,400,000. During 2018, costs of $2,160,000 were incurred, with estimated costs of $4,160,000 yet to be incurred. Billings of $2,692,000 were sent, and cash collected was $2,410,000. In 2019, costs incurred were $2,692,000 with remaining costs estimated to be $3,840,000. 2019 billings were $2,942,000, and $2,635,000 cash was collected. The project was completed in 2020 after additional costs of $3,960,000 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.
Explanation / Answer
PART-1)
Year
Revenue recognized
Gross profit (loss) recognized
2018
0
0
2019
0
-292,000
2020
8,400,000
-120,000
Total
8,400,000
-412,000
PART-2)
A)
Debit
Credit
2018
Construction in progress
2,160,000
Various accounts
2,160,000
2018
Accounts receivable
2,692,000
Billlings
2,692,000
2018
Cash
2,410,000
Accounts receivable
2,410,000
2018
No journal entry required
B)
Debit
Credit
2019
Construction in progress
2,692,000
Various accounts
2,692,000
2019
Accounts receivable
2,942,000
Billlings
2,942,000
2019
Cash
2,635,000
Accounts receivable
2,635,000
2019
Loss on term project
292,000
Construction in progress
292,000
PART-3)
A)
Balance Sheet
At December 2018
Current Assets
Accounts receiveble
282,000
Current liabilities
Billings in excess of costs
532,000
B)
Balance Sheet
At December 2019
Current Assets
Accounts receiveble
589,000
Current liabilities
Billings in excess of costs
1,074,000
Year
Revenue recognized
Gross profit (loss) recognized
2018
0
0
2019
0
-292,000
2020
8,400,000
-120,000
Total
8,400,000
-412,000
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