Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,650,000. The project began...
Assume Nortel Networks contracted to provide a customer with
Internet infrastructure for $2,650,000. 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 | $ | 352,000 | $ | 2,025,000 | ||
| Estimated costs to complete as of 12/31 | 1,408,000 | 0 | ||||
| Billings during the year | 470,000 | 1,750,000 | ||||
| Cash collections during the year | 405,000 | 1,815,000 | ||||
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 the 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.
Homework Answers
1.
2.
| Revenue | Gross Profit (Loss) | |
| 2021 | 0 | 0 |
| 2022 | 2650000 | 273000 |
Since the project does not qualify for revenue recognition over time, the entire revenue of $2650000 and gross profit $2650000 - $2377000 = $273000 will be recognized on completion of the project in 2022.
3.
| Nortel Networks | |
| Balance Sheet (Partial) | |
| At December 31, 2021 | |
| Current assets: | |
| Accounts receivable | 65000 |
| Costs and profits in excess of billings | 60000 |
| Current liabilities: | |
Working:
Accounts receivable = $470000 - $405000 = $65000
Costs and profits in excess of billings = $352000 + $178000 - $470000 = $60000
4.
| Nortel Networks | |
| Balance Sheet (Partial) | |
| At December 31, 2021 | |
| Current assets: | |
| Accounts receivable | 65000 |
| Current liabilities: | |
| Billings in excess of costs | 118000 |
Working:
Accounts receivable = $470000 - $405000 = $65000
Billings in excess of costs = $470000 - $352000 = $118000
Add Answer to:
Assume Nortel Networks contracted to provide a customer with
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