Question

On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,060,000. During 2018, costs of $2,020,000 were incurred with estimated costs of $4,020,000 yet to be incurred. Billings of $2,520,000 were sent, and cash collected was $2,270,000.

In 2019, costs incurred were $2,520,000 with remaining costs estimated to be $3,630,000. 2019 billings were $2,770,000 and $2,495,000 cash was collected. The project was completed in 2020 after additional costs of $3,820,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion.

Required:
1. Compute the amount of revenue and gross profit or loss to be recognized in 2018, 2019, and 2020 using the percentage of completion method?
2a. Prepare journal entries for 2018 to record the transactions described (credit "various accounts" for construction costs incurred).
2b. Prepare journal entries for 2019 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, 2018.
3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2019.

Please explain the 2019 construction expense. I am adding the cost incurred in 2018 of 2,020,000 and the cost incurred in 2019 of $2,520,000.

Compute the amount of revenue and gross profit or loss to be recognized in 2018, 2019, and 2020 using the percentage of completion method? (Do not round intermediate calculations. Loss amounts should be indicated with a minus sign. Round your final answers to the nearest whole dollar.) % complete to date Percentages of completion Choose Choose numerator denominator Actual costs to Estimated total date costs 2,020,000 $ 6,040,000 $ 4,540,000 $ 8,170,000 33.4437% 2018 2019 2020 55.5692% 100.0000% To date 2018 Recognized in prior years $ Recognized in 2018 0 $ Construction revenue Construction expense Gross profit (loss) 2,695,562 2,020,000 675,562 0 $ $ $ 2,695,562 2,020,000 675,562 $ divat

Answer 1

Ques 1
	2016	2017	2018
Estimated total gross profit(loss)	$                   2,020,000	$                               (110,000)
Actual total gross profit(loss)			$                       (300,000)
	Numerator	/	Denominator	=	%completion
	Actual costs to date	/	Estimated total costs	=
2016	2020000	/	6040000	=	33.4437%
2017	4540000	/	8170000	=	55.5692%
2018		/		=	100.0000%
2016
	to date	Recognised in prior years	Recognised in 2016
Construction revenue	$                   2,695,563		$                     2,695,563
Construction expense	$                   2,020,000		$                     2,020,000
Gross Profit (loss)	$                      675,563		$                         675,563
2017
	to date	Recognised in prior years	Recognised in 2016
Construction revenue	$                   4,478,874	$                             2,695,563	$                     1,783,311
Construction expense	$                   4,588,874	$                             2,020,000	$                     2,568,874
Gross Profit (loss)	$                     (110,000)	$                                675,563	$                       (785,563)
2018
	to date	Recognised in prior years	Recognised in 2016
Construction revenue	$                   8,060,000	$                             4,478,874	$                     3,581,126
Construction expense	$                   8,360,000	$                             4,588,874	$                     3,771,126
Gross Profit (loss)	$                     (300,000)	$                               (110,000)	$                       (190,000)

Ques 2a
Year	Accounts	debit	credit
2016	Constuction in progress	$         2,020,000
	Various accounts		$         2,020,000
2016	Accounts receivable	$         2,520,000
	Billings on construction contract		$         2,520,000
2016	Cash	$         2,270,000
	Accounts receivable		$         2,270,000
2016	Construction in progress	$            675,563
	Cost of construction	$         2,020,000
	Revenue from long term contracts		$         2,695,563
2016	No entry
Year	Accounts	debit	credit
2017	Constuction in progress	$         2,520,000
	Various accounts		$         2,520,000
2017	Accounts receivable	$         2,770,000
	Billings on construction contract		$         2,770,000
2017	Cash	$         2,495,000
	Accounts receivable		$         2,495,000
2017	No entry
2017	Cost of construction	$         2,568,874
	Construction in progress		$            785,563
	Revenue from long term contracts		$         1,783,311

Ques 3a
Balance sheet-2016
Current Assets
Accounts receivable	$         250,000	2520000-2270000
Cost and profit in excess of billings	$         175,563	2020000+675563-2520000
Current liabilities
Balance sheet-2017
Current Assets
Accounts receivable	$         525,000	2770000+250000-2495000
Cost and profit in excess of billings
Current liabilities
Billings in excess of billings	$         860,000	2520000+2770000-2020000-2520000--110000