On February 1, 2018, Arrow Construction Company entered into a three-year constr
ID: 2551258 • 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 $8.000,000. During 2018, costs of S2,000,000 were incurred with estimated costs of s4.000,000 yet to be incurred. Billings of $2,500,000 were sent, and cash collected was $2.250,000. In 2019, costs incurred were $2,500,000 with remaining costs estimated to be $3,600,000. 2019 billings were s2.750,000, and $2,475,000 cash was collected. The project was completed in 2020 after additional costs of $3,800,000 were incurred. The company's fiscal year-end is December 31. Arrow recognizes revenue over ü e time: loss$ on te project according to percentage of completionExplanation / Answer
Solution:
2018
2019
2020
Contract price
8,000,000
8,000,000
8,000,000
Actual costs to date
2,000,000
4,500,000
8,300,000
Estimated costs to complete
4,000,000
3,600,000
0
Total estimated costs
6,000,000
8,100,000
8,300,000
Estimated total gross profit (loss)
2,000,000
100,000
-300,000
% of completion : 2/(2+4) = 1/3; (2+2.5)/(2+2.5+3.6) = .555
Gross profit (loss) recognition:
2018: 33.3333% * $2,000,000 = $666,667
2019: $-100,000 - 666,667 = - $766,667
2020 $300,000 - $100,000 = $200,000
2018
2019
2020
Contract price
8,000,000
8,000,000
8,000,000
Actual costs to date
2,000,000
4,500,000
8,300,000
Estimated costs to complete
4,000,000
3,600,000
0
Total estimated costs
6,000,000
8,100,000
8,300,000
Estimated total gross profit (loss)
2,000,000
100,000
-300,000
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