Question

Exercise 6-21 (Algo) Long-term contract; revenue recognition over time; loss projected on entire project (LO6-9) On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,270,000. During 2021, costs of $2,090,000 were incurred with estimated costs of $4,090,000 yet to be incurred. Billings of $2,590,000 were sent, and cash collected was $2,340,000. points eBook In 2022, costs incurred were $2,590,000 with remaining costs estimated to be $3,735,000. 2022 billings were $2,840,000 and $2,565,000 cash was collected. The project was completed in 2023 after additional costs of $3,890,000 were incurred. The company's fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion. Print References Required: 1. Compute the amount of revenue and gross profit or loss to be recognized in 2021, 2022, and 2023 using the percentage of completion method. 2a. Prepare journal entries for 2021 to record the transactions described (credit "various accounts" for construction costs incurred). 2b. Prepare journal entries for 2022 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, 2021. 3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2022. Complete this question by entering your answers in the tabs below. Reg 1 Reg 3A Req 2A Reg 28 Req 3B Compute the amount of revenue and gross profit or loss to be recognized in 2021, 2022, anc method. (Do not round intermediate calculations. Loss amounts should be indicated with a m nearest whole dollar.) Percentages of completion Choose numerator Choose denominator

Answer 1

Percentage of Completion Choose Denominator Total estimated cost to date $6,180,000 $8,415,000 $8,570,000 Choose Numerator Cost incurred to date $2,090,000 $4,680,000 $8,570,000 2021 2022 2023 % complete to date % complete to date 33.8188% 55.6150% 100.0000% [$2090000 / $6180000] [$4680000 / $8415000] [$8570000 / $8570000] NOTE: Total estimated cost to date 2021 = $2090000 + $4090000 = $6180000; Cost incurred to date for 2022 = $2090000 + $ 2590000 = $4680000; Total estimated cost to date 2022 = $4680000 + $3735000 = $8415000; Cost incurred to date for 2023 = $4680000 + $3890000 = $8570000. 2021 To Date Recognized in Prior year Recognized in 2021 Construction Revenue $2,796,812 $0 $2,796,812 [$8270000 x 33.8188%] Construction Expense $2,090,000 $0 $2,090,000 Gross Profit (Loss) $706,812 $0 $706,812 [$2796812 - $2090000] Construction Revenue Construction Expense Gross Profit (Loss) 2022 To Date Recognized in Prior year $4,599,358 $2,796,812 $4,680,000 $2,090,000 $80,642 $706,812 Recognized in 2022 $1,802,546 $2,590,000 $787,454 [To Date = $8270000 x 55.615%] [To Date = $2090000 + $ 2590000] ($1802546 - $2590000]

Construction Revenue Construction Expense Gross Profit (Loss) 2023 To Date Recognized in Prior year $8,270,000 $4,599,358 $8,570,000 $4,680,000 $300,000 $80,642 Recognized in 2023 $3,670,642 $3,890,000 -$219,358 [To Date = $8270000 x 100.0000%] [To Date = $4680000 + $3890000] [$3670642 - $3890000]

Account Titles Requirement-2(a) 2021 Debit Credit Requirement-2(b) 2022 Debit Credit $2,090,000 $2,590,000 Cost incurred during the year] $2,090,000 $2,590,000 Construction in progress Various Accounts (Materials, Labor, Etc.) (To record construction costs) Accounts receivable Billings on construction contract (To record progress billings) $2,590,000 $2,840,000 [Billings during the year] $2,590,000 $2,840,000 $2,340,000 $2,565,000 [Given] $2,340,000 $2,565,000 $2,590,000 $2,090,000 $706,812 Cash Accounts receivable (To record cash collections) Cost of construction Construction in progress Revenue from long-term contracts (To record gross profit (debit) or loss (credit)) Billings on construction contract Construction in progress (To close these accounts) [Cost incurred during the year] $787,454 [Gross Profit (Debit) or Loss (Credit)] $1,802,546 [Balancing figure] $2,796,812 No Entry No Entry [As contract is not yet completed]

3) 3a) 2021 3b) 2022 $250,000 Balance Sheet (Partial) Current Assets: Accounts Receivable Construction in progress Less: Billings Costs and profit in excess of billings $2,796,812 ($2,590,000) $4,599,358 ($5,430,000) $525,000 [2021 = $2590000 - $2340000; 2022 = $250000 + ($2840000 - $2565000)] [2022 = $2796812 + $1802546] [2022 = $2590000 + $2840000] ($830,642) $206,812 Current Liabilities: Billings in excess of costs $500,000 $250,000 [2021 = $2590000 - $2090000; 2022 = $500000 + ($2840000 - $2590000)]