Question

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,500,000. The project began in 2018 and was completed in 2019. Data relating to the contract are summarized below:

	2018			2019
Costs incurred during the year	$	340,000		$	1,940,000
Estimated costs to complete as of 12/31		1,360,000			0
Billings during the year		451,000			1,720,000
Cash collections during the year		270,000			1,800,000

Required:
1. Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 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 2018 and 2019 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 2018 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 2018 assuming this project does not qualify for revenue recognition over time.

Answer 1

Ans 1)	Percentages of completion
		Numerator/	Denominator =	% complete to date
		Cost incurred to date/	Total estimated cost =
	2018	340,000	1700000	20%
	2019	2,280,000	2,280,000	100%
	2018
		To date	Recognized in pys	Recognized in 2018
	Construction revenue	500000	0	500000
	Construction expense	340000	0	340000
	Gross profit (loss)	160000	0	160000
	2019
		To date	Recognized in pys	Recognized in 2018
	Construction revenue	2,500,000	500000	2,000,000
	Construction expense	2,280,000	340000	1,940,000
	Gross profit (loss)	220,000	160000	60000
Ans 2)		Revenue	Gross profit (Loss)
	2018	0	0
	2019	2,500,000	220,000
Ans 3)	BALANCE SHEET PARTIAL-DECEMBER 31, 2018:
	Current assets:
	Costs and profit in excess of billings		49000
	Accounts receivable		181000
Ans 4)	BALANCE SHEET PARTIAL-DECEMBER 31, 2018:
	Current assets:
	Accounts receivable		101000