On February 1, 2016, Arrow Construction Company entered into a three-year constr

Question

On February 1, 2016, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,360,000. During 2016, costs of $2,120,000 were incurred with estimated costs of $4,120,000 yet to be incurred. Billings of $2,620,000 were sent and cash collected was $2,370,000.

      In 2017, costs incurred were $2,620,000 with remaining costs estimated to be $3,780,000. 2017 billings were $2,870,000 and $2,595,000 cash was collected. The project was completed in 2018 after additional costs of $3,920,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion.

Compute the amount of revenue and gross profit or loss to be recognized in 2016, 2017, and 2018 using the percentage-of-completion method?

Prepare journal entries for 2016 to record the transactions described (credit "various accounts" for construction costs incurred). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

Prepare journal entries for 2017 to record the transactions described (credit "various accounts" for construction costs incurred). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

Prepare a partial balance sheet to show the presentation of the project as of December 31, 2016. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

On February 1, 2016, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,360,000. During 2016, costs of $2,120,000 were incurred with estimated costs of $4,120,000 yet to be incurred. Billings of $2,620,000 were sent and cash collected was $2,370,000.

      In 2017, costs incurred were $2,620,000 with remaining costs estimated to be $3,780,000. 2017 billings were $2,870,000 and $2,595,000 cash was collected. The project was completed in 2018 after additional costs of $3,920,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion.

Explanation / Answer

% Completion for revenue recognition = Cumulative Actual Cost/ Total Estimated cost Total esimate $                8,360,000.00 Ans 1 All data in $ Year Cumulative Cost Total Estimated Cost % Completion Revenue can be recognized Cost for the yar Revenue for the Year Profit /Loss to be recognized 2016                       2,120,000                          6,240,000 34%                                     2,842,400         2,120,000      2,842,400                              722,400 2017                       4,740,000                          8,520,000 56%                                     4,650,986         2,620,000      1,808,586                           (811,414) 2018                       8,660,000                             100                                     8,360,000         3,920,000      3,709,014                           (210,986)         8,660,000      8,360,000                           (300,000) Income Statement Year 2016 2017 2018 Revenue                       2,842,400                          1,808,586                 3,709,014 Cost                       2,120,000                          2,620,000                 3,920,000 Income /Loss                           722,400                            (811,414)                   (210,986) Ans 2a JV entries Year 2016 Particulars Dr $ Cr $ 1 Sales Revenue                 2,842,400 Accounts receivable                          2,620,000 Accrued revenue                              222,400 2 Cost of projects                          2,120,000 Vendors payable                 2,120,000 3 Accounts Receivable                 2,370,000                                         250,000 Cash/Bank                          2,370,000 Ans 2b Year 2017 1 Sales Revenue                 1,808,586 Accounts receivable                          2,870,000 Unearned revenue                     839,014 Accrued Revenue                     222,400                                       (275,000) 2 Cost of projects                          2,620,000 Vendors payable                 2,620,000 3 Accounts Receivable                 2,595,000 Cash/Bank                          2,595,000 Ans 3a Partial Balance Sheet As on Dec 2016 Arrow Construction Assets $ Liabilities $ $ Cash                       2,370,000 Accounts payable                 2,120,000 Accounts Receivable                           250,000 Tarnsfer from P/L                     722,400 Accrued Revenue                           222,400                       2,842,400                 2,842,400 Partial Balance Sheet As on Dec 2017 Arrow Construction Ans 3b Assets $ Liabilities $ $ Cash                       4,965,000 Accounts payable                 4,740,000 Accounts Receivable                           525,000 Retained earning                     (89,014) Unearned revenue                     839,014                       5,490,000                 5,490,000                                                     -

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