Question

Saved Help Save & Exit Submi Check my work Curtiss Construction Company, Inc., entered into a fixed-price contract with Axelrod Associates on July 1, 2021, to construct a four-story office building. At that time, Curtiss estimated that it would take between two and three years to complete the project. The total contract price for construction of the building is $4,660,000. The building was completed on December 31, 2023. Estimated percentage of completion, accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Axelrod under the contract were as follows: Percentage of completion Costs incurred to date Estimated costs to complete Billings to Axelrod, to date At 12-31-2021 10% $ 370,000 3,330,000 731,000 At 12-31-2022 60% $2,982,800 1,988,000 2,390,000 At 12-31-2023 100% $5,031, ee @ 4,660,000 Required: 1. Compute gross profit or loss to be recognized as a result of this contract for each of the three years. Curtiss concludes that the contract does not qualify for revenue recognition over time. 2. Assuming Curtiss recognizes revenue over time according to percentage of completion, compute gross profit or loss to be recognized in each of the three years. 3. Assuming Curtiss recognizes revenue over time according to percentage of completion, compute the amount to be shown in the balance sheet at the end of 2021 and 2022 as either cost in excess of billings or billings in excess of costs.

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Answer 1

Answer: 1   Does not qualify for revenue recognized over time.
Year	2021	2022	2023
Cost incurred to date	$         370,000	$         2,982,000	$        5,031,000
Estimated costs to complete	$     3,330,000	$         1,988,000	$                       -
Total estimated costs	$     3,700,000	$         4,970,000	$        5,031,000
Contract price	$     4,660,000	$         4,660,000	$        4,660,000
Less: Total estimated costs	$     3,700,000	$         4,970,000	$        5,031,000
Estimated gross profit (loss)	$         960,000	$           (310,000)	$         (371,000)
Gross profit and sales revenue would be recognized when contract is completed. However, loss would be recognized immediately.
Year	2021	2022	2023	Total
Gross profit (loss) recognized (Answer 1)	$                     -	$           (310,000)	$           (61,000)	$   (371,000)

Answer: 2   Does qualify for revenue recognized over time.
Year	2021	2022	2023	Total
Total estimated costs	$     3,700,000	$         4,970,000	$        5,031,000
Contract price	$     4,660,000	$         4,660,000	$        4,660,000
Multiply: Percentage of compilation	10%	60%	100%
Revenue recognized till the date	$         466,000	$         2,796,000	$        4,660,000
Revenue recognized up to earlier year	$                      0	$             466,000	$        2,796,000
Revenue recognized in current year	$         466,000	$         2,330,000	$        1,864,000	$ 4,660,000
Cost incurred to date	$         370,000	$         2,982,000	$        5,031,000
Cost incurred during the year	$         370,000	$         2,612,000	$        2,419,000	$ 5,401,000
When Total estimated costs is belows the total contract value
Revenue recognized in current year	$         466,000
Less: cost incurred during the year	$         370,000
Gross profit recognition	$           96,000
When Total estimated costs is above the total contract value
Contract price		$         4,660,000	$        4,660,000
Less: Total estimated costs		$         4,970,000	$        5,031,000
Estimated gross profit (loss)		$           (310,000)	$         (371,000)
Less: Gain of prior period		$             (96,000)
Add: Prior perio's Estimated gross loss			$           310,000
Gross profit (loss) recognition	$           96,000	$           (406,000)	$           (61,000)	$   (371,000)

Answer: 3 Balance sheet Does qualify for revenue recognized over time.
Balance Sheet	2021	2022
Current assets:
Costs less loss in excess of billings		$             282,000
Current liabilities:
Billings in excess of costs and profit	$         265,000
Calcuation
Cost incurred to date	$         370,000	$         2,982,000
Estimated loss , if gain arise then check Gross profit as per part 2	$           96,000	$           (310,000)
Total	$         466,000	$         2,672,000
Cumulative Billings	$         731,000	$         2,390,000
Current assets (Current liabilities)	$       (265,000)	$             282,000