Question

Exercise 5-21 Income (loss) recognition; Long-term contract; revenue recognition over time vs. upon project completion (LO5-9) Brady Construction Company contracted to build an apartment complex for a price of $6,300,000. Construction began in 2018 and was completed in 2020. The following is a series of independent situations, numbered 1 through 6, involving differing costs for the project. All costs are stated in thousands of dollars. Costs Incurred During Year Situation 2018 2019 2020 1 1,630 2,520 1,290 2 1,630 1,290 2,920 3 1,630 2,520 2,640 4 630 3,130 1,260 5 630 3,130 2,210 6 630 3,130 3,100 Estimated Costs to Complete (As of the End of the Year) 2018 2019 2020 3,810 1,290 3,810 2,920 3,810 2,540 4,410 940 4,410 2,540 5,855 2,870 IIIIII Required: Complete the following table. (Do not round Intermediate calculations. Enter answers in dollars. Round your final answers to the nearest whole dollar. Negative amounts should be indicated by a minus sign.) Answer is complete but not entirely correct. Gross Profit (Loss) Recognized Revenue Recognized Over Time Revenue Recognized Upon Completion 2018 2019 2020 2018 2019 2020 $ 257,684 S 398,3825 203,934 0 $ 860,000 257,684 (27,684) 230,000 0 460,000 Situation < Prev 6 of 6 Next

I just need help with situation 6, the two that are incorrect.

thank you!

Answer 1

The correct answers are as follows :

	Revenue recognized Upon Completion
Situation	2018	2019	2020
6	-1,85,000	-1,45,000	-2,30,000
Calculation of 2018 Loss :
Total estimated costs = 630+5855 = 6485
Total revenue = 6300
Loss = 6485-6300 = 185,000 $
Calculation of 2019 Loss :
Total estimated costs = 630+3130+2870 = 6630
Total revenue = 6300
Loss = 6630-6300 = 330,000 $
Loss already recognized in 2018 = 185,000 $
Loss to be recognized in 2019 = 330,000-185,000 = 145,000 $
Calculation of 2020 Loss :
Total costs at end of contract = 630+3130+3100 = 6860
Total revenue = 6300
Loss = 6860-6300 = 560,000 $
Loss already recognized in 2018 and 2019 = 330,000$
Loss to be recognized in 2019 = 560,000-330,000 = 230,000 $