On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,125,000. During 2018, costs of $2,050,000 were incurred, with estimated costs of $4,050,000 yet to be incurred. Billings of $2,560,000 were sent, and cash collected was $2,300,000. In 2019, costs incurred were $2,560,000 with remaining costs estimated to be $3,675,000. 2019 billings were $2,810,000, and $2,525,000 cash was collected. The project was completed in 2020 after additional costs of $3,850,000 were incurred. The company’s fiscal year-end is December 31. This project does not qualify for revenue recognition over time.
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Part 1 | ||||
2018 | 2019 | 2020 | ||
Contract price | $ 8,125,000 | $ 8,125,000 | $ 8,125,000 | |
Actual costs to date | $ 2,050,000 | $ 4,610,000 | $ 8,460,000 | |
Estimated costs to complete | $ 4,050,000 | $ 3,675,000 | $ - | |
Total estimated costs | $ 6,100,000 | $ 8,285,000 | $ 8,460,000 | |
Estimated gross profit | ||||
(actual in 2023) | $ 2,025,000 | $ -160,000 | $ -335,000 | |
Revenue Recognition: | Gross profit (loss) recognized: | |||
Year 2018 | $ - | $ - | ||
Year 2019 | $ - | $ -160,000 | ||
Year 2020 | $ 8,025,000 | $ -175,000 | ||
Total | $ 8,025,000 | $ -335,000 | ||
Part 2a and 2b | ||||
Year 2018 | Year 2019 | |||
Construction in Progress | $ 2,050,000 | $ 2,560,000 | ||
Various Accounts | $ 2,050,000 | $ 2,560,000 | ||
Accounts Receivable | $ 2,560,000 | $ 2,810,000 | ||
Billing on Construction Contracts | $ 2,560,000 | $ 2,810,000 | ||
Cash | $ 2,300,000 | $ 2,525,000 | ||
Accounts Receivable | $ 2,300,000 | $ 2,525,000 | ||
Loss on Long term Contracts | $ 160,000 | |||
Construction in progress | $ 160,000 | |||
Requirement 3a and 3b | ||||
Year 2018 | Year 2019 | |||
Current Assets: | ||||
Accounts Receivable | $ 260,000 | $ 545,000 | ||
Current Liabilities: | ||||
Billings $2,560,000 in excess of costs $2,050,000 | $ 510,000 | |||
Billing $5,370,000 in excess of cost less loss | $ 920,000 | |||
$4,610,000-$160,000=$4,450,000 |
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