Curtiss Construction Company, Inc., entered into a fixed-price contract with Axe

Question

Curtiss Construction Company, Inc., entered into a fixed-price contract with Axelrod Associates on July 1, 2018, to construct a four-story office building. At that time, Curtiss estimated that it would take between two and three years to complete the project. The total contract price for construction of the building is $4,060,000. Curtiss concludes that the contract does not qualify for revenue recognition over time. The building was completed on December 31, 2020. Estimated percentage of completion, accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Axelrod under the contract were as follows:

Required:
1. Compute gross profit or loss to be recognized as a result of this contract for each of the three years.
2. Assuming Curtiss recognizes revenue over time according to percentage of completion, compute gross profit or loss to be recognized in each of the three years.
3. Assuming Curtiss recognizes revenue over time according to percentage of completion, compute the amount to be shown in the balance sheet at the end of 2018 and 2019 as either cost in excess of billings or billings in excess of costs.

At 12-31-2018 At 12-31-2019 At 12-31-2020 Percentage of completion 10 % 60 % 100 % Costs incurred to date $ 355,000 $ 2,540,000 $ 4,321,000 Estimated costs to complete 3,160,000 1,730,000 0 Billings to Axelrod, to date 735,000 2,190,000 4,060,000

Explanation / Answer

Req 1: YEAR2018 YEAR 2019 YEAR 2020 Cost to Date 355000 2540000 4321000 Estimated cost to complete 3160000 1730000 0 Total Estimated cost 3515000 4270000 4321000 Contract Price 4,060,000 4,060,000 4,060,000 No Gross profit is recognized under Ocmpletion contract method Gross Loss tto be relaised when estimated tota ccost is more than contract price. Gross Loss to be recognized : Year 2019 Year 2020 Gross Loss -210,000 Yyear 2019 (4270000-4060000) -51000 Year 2020 (4321000-4060000-210000) Req 2: YEAR2018 YEAR 2019 YEAR 2020 Cost to Date 355000 2540000 4321000 Estimated cost to complete 3160000 1730000 0 Total Estimated cost 3515000 4270000 4321000 Contract price 4060000 4060000 4060000 % completion 10.10% 59.50% 100% Revenue to be recognized Year 2018 (4060000*10.1%) 410060 2019 (4060000*59.50% -410060) 2005640 2020 (4060000-410060-2415700) 1644300 Gross profit/ (loss) to be recognized) 55060 Gross Loss to be reocognized -265060 -51000 Note: in Year-2018, it wil be recognized on the baasis of % completion. Howevver, when there is estimated loss, it will be completely reccognized REq3: YEAR2018 YEAR 2019 Cost to date 355000 2540000 Add: Gross Profit 55060 Less: Gross Lloss -265060 WIP 410060 2274940 Less: Billing 735000 2190000 Cost in excess of billing 84940 Billing inexcess of cost 324940

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