1, 2018, Arrow Construction Company entered into a three-year construction contr

Question

1, 2018, Arrow Construction Company entered into a three-year construction contract to build hridge for a price of $8.000,000. During 2018, costs of $2,000,000 were incurred with estimated costs of 000 yet to be incurred. Billings of $2,500,000 were sent, and cash collected was $2.250.000. 19, costs incurred were $2,500,000 with remaining costs estimated to be $3,600.000. 2019 billings were eene In 201 $2, 750,000, and $2,475,000 cash was collected. The project was completed in 2020 after additional costs 055 re incurred. The company's fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion Required: 1. Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years. 2. Prepare journal entries for 2018 and 2019 to record the transactions described (credit "various accounts" for construction costs incurred). 3. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2018 and 2019.

Explanation / Answer

Requirement 1 2018 2019 2020 Conract price $        8,000,000 $        8,000,000 $        8,000,000 Actual cost to date (cumulative) $        2,000,000 $        4,500,000 $        8,300,000 Estimated cost to complete $        4,000,000 $        3,600,000 Total estimated costs $        6,000,000 $        8,100,000 $        8,300,000 Estimated gross profit $        2,000,000 $         (100,000) $         (300,000) Actual cost/ Total estimated cost % 33% 55.56% 100% Revenue to be recognized $        2,666,667 $        1,777,333 $        3,556,000 Gross profit (Revenue-yearly cost) $            666,667 $         (766,667) $         (200,000) Requirement 2 2018 Construction in progress $        2,000,000 Various accounts $        2,000,000 2018 Accounts receivable $        2,500,000 Billing on construction contracts $        2,500,000 2018 Cash $        2,250,000 Accounts receivable $        2,250,000 2018 Construction in progress $            666,667 Cost of construction $        2,000,000 Revenue from long term contracts $        2,666,667

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