Question

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,700,000. The project began...

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,700,000. The project began in 2021 and was completed in 2022. Data relating to the contract are summarized below:

2021 2022
Costs incurred during the year $ 356,000 $ 2,135,000
Estimated costs to complete as of 12/31 1,424,000 0
Billings during the year 475,000 1,760,000
Cash collections during the year 415,000 1,820,000


Required:
1. Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming Nortel recognizes revenue over time according to percentage of completion.
2. Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming this project does not qualify for revenue recognition over time.
3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming Nortel recognizes revenue over time according to percentage of completion.
4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming this project does not qualify for revenue recognition over time.

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Answer #1

Percentage of Completion Choose Numerator Choose Denominator Actula Cost to Date / Estimated Total Costs 2021 356000 2022 249Gross Profit and Loss To be Recognised Revenue Gross Profit 2021 0 2022 2700000 209000 Partial Balance Sheet At December 31,2Working Notes 2022 2700000 2491000 Contract Cost incurred During the Period Estimated Costs to Complete as of 12/31 Estiamted

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