Exercise 6-23 (Static) Income (loss) recognition; Long-term contract; revenue recognition over time vs. upon project completion [LO6-9] Brady Construction Company contracted to build an apartment complex for a price of $5,000,000. Construction began in 2021 and was completed in 2023. 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.
FOR 2021
SITUATION | COST INCURED DURING THE YEAR [A] | ESTIMATE COST TO COMPLETE [B] | TOTAL COST INCURED [C=A+B] | % OF COMPLETION [D= A/C *100 | TOTAL CONTRACT REVENUE [E] | GROSS MARGIN [F=E-C | GROSS PROFT RECOGNIZED [G = F*D] |
1 | 1,500,000 | 3,000,000 | 4,500,000 | 33.33% | 5,000,000 | 500,000 | 166,667 |
2 | 1,500,000 | 3,000,000 | 4,500,000 | 33.33% | 5,000,000 | 500,000 | 166,667 |
3 | 1,500,000 | 3,000,000 | 4,500,000 | 33.33% | 5,000,000 | 500,000 | 166,667 |
4 | 500,000 | 3,500,000 | 4,000,000 | 12.50% | 5,000,000 | 1,000,000 | 125,000 |
5 | 500,000 | 3,500,000 | 4,000,000 | 12.50% | 5,000,000 | 1,000,000 | 125,000 |
6 | 500,000 | 4,600,000 | 5,100,000 | 9.80% | 5,000,000 | (100,000) | (100,000) |
FOR 2022
SITUATION | COST INCURED DURING THE YEAR [A] | ESTIMATE COST TO COMPLETE [B] | TOTAL COST INCURED [C=A+B] | % OF COMPLETION [D= A/C *100 | TOTAL CONTRACT REVENUE [E] | GROSS MARGIN [F=E-C | GROSS PROFT RECOGNIZED [G = F*D] | GROSS PROFIT ALREADY RECOGNIZED [H] | GROSS PROFIT / (LOSS) RECOGNIZED [I=G-H |
1 | 3,600,000 | 900,000 | 4,500,000 | 80% | 5,000,000 | 500,000 | 400,000 | 166,667 | 233,333 |
2 | 2,400,000 | 2,400,000 | 4,800,000 | 50% | 5,000,000 | 200,000 | 100,000 | 166,667 | (66,667) |
3 | 3,600,000 | 1,500,000 | 5,100,000 | 70.59% | 5,000,000 | (100,000) | (100,000) | 166,667 | (266,667) |
4 | 3,500,000 | 875,000 | 4,375,000 | 80% | 5,000,000 | 675,000 | 500,000 | 125,000 | 375,000 |
5 | 3,500,000 | 1,500,000 | 5,000,000 | 70% | 5,000,000 | 0 | 0 | 125,000 | (125,000) |
6 | 3,500,000 | 1,700,000 | 5,200,000 | 67.31% | 5,000,000 | (200,000) | (134,615) | (100,000) | (100,000) |
FOR 2023
SITUATION | COST INCURED DURING THE YEAR [A] | TOTAL CONTRACT REVENUE [B] | GROSS MARGIN[C=B-A] | GROSS PROFIT TO BE RECOGNIZED[D=C] | GROSS PROFT ALREADY RECOGNIZED [E ] | GROSS PROFIT ALREADY RECOGNIZED [F] | TOTAL GROSS PROFIT [G=E+F] | GROSS PROFIT [H=C-G] |
1 | 4,500,000 | 5,000,000 | 500,000 | 500,000 | 166,667 | 233,333 | 400,000 | 100,000 |
2 | 4,800,000 | 5,000,000 | 200,000 | 200,000 | 166,667 | (66,667) | 100,000 | 100,000 |
3 | 5,200,000 | 5,000,000 | (200,000) | (200,000) | 166,667 | (266,667) | (100,000) | (100,000) |
4 | 4,500,000 | 5,000,000 | 500,000 | 500,000 | 125,000 | 375,000 | 500,000 | 0 |
5 | 4,800,000 | 5,000,000 | 200,000 | 200,000 | 125,000 | (125,000) | 0 | 200,000 |
6 | 5,300,000 | 5,000,000 | (300,000) | (300,000) | (100,000) | (100,000) | (200,000) | (100,000) |
FINAL ANSWER
GROSS PROFIT /(LOSS) RECOGNIZED
SITUATION | Revenue Recognized overtime | Revenue Recognized upon completion | ||||
2021 | 2022 | 2023 | 2021 | 2022 | 2023 | |
1 | 166,667 | 233,333 | 100,000 | 0 | 0 | 500,000 |
2 | 166,667 | (66,667) | 100,000 | 0 | 0 | 200,000 |
3 | 166,667 | (266,667) | (100,000) | 0 | (100,000) | (100,000) |
4 | 125,000 | 375,000 | 0 | 0 | 0 | 500,000 |
5 | 125,000 | (125,000) | 200,000 | 0 | 0 | 200,000 |
6 | (100,000) | (100,000) | (100,000) | (100,000) | (100,000) | (100,000) |
bracket shows loss
hope you got the answer
Thankyou and all the best for future
PLEASE UPVOTE...
Exercise 6-23 (Static) Income (loss) recognition; Long-term contract; revenue recognition over time vs. upon project completion...
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