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Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructed under contract3. Answer the following questions assuming that Citation uses the percentage-of-completion method for its office building con

Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructed under contract with reputable buyers. The homes are constructed in developments ranging from 10-20 homes and are typically sold during construction or soon after. To secure the home upon completion, buyers must pay a deposit of 10% of the price of the home with the remaining balance due upon completion of the house and transfer of title. Failure to pay the full amount results in forfeiture of the down payment. Occasionally, homes remain unsold for as long as three months after construction. In these situations, sales price reductions are used to promote the sale During 2018, Citation began construction of an office building for Altamont Corporation. The total contract price is $24 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows 2018 2019 2020 Costs incurred during the year Estimated costs to complete as of year-end Billings during the year Cash collections during the year $ 4,800,000 $11,400,000 14,400,000 2,400,000 2,160,000 5,400, 000 5,400,000 12,000,000 10,640,000 9,600,000 11,200,000 Also during 2018, Citation began a development consisting of 12 identical homes. Citation estimated that each home will sell for $880,000, but individual sales prices are negotiated with buyers. Deposits were received for eight of the homes, three of which were completed during 2018 and paid for in full for $880,000 each by the buyers. The completed homes cost $660,000 each to construct. The construction costs incurred during 2018 for the nine uncompleted homes totaled $3,960,000 Requirec 1. Which method is most equivalent to recognizing revenue at the point of delivery? 2. Answer the following questions assuming that Citation uses the completed contract method for its office building contracts: 2-a. How much revenue related to this contract will Citation report in its 2018 and 2019 income statements? 2-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2018 and 2019? 2-c. What will Citation report in its December 31, 2018, balance sheet related to this contract? (lgnore cash.) 3. Answer the following questions assuming that Citation uses the percentage-of-completion method for its office building contracts
3. Answer the following questions assuming that Citation uses the percentage-of-completion method for its office building contracts 3-a. How much revenue related to this contract will Citation report in its 2018 and 2019 income statements? 3-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2018 and 2019? 3-c. What will Citation report in its December 31, 2018, balance sheet related to this contract? (Ignore cash.) 4. Assume the same information for 2018 and 2019, but that as of year-end 2019 the estimated cost to complete the office building is $10,800,000. Citation uses the percentage-of-completion method for its office building contracts 4-a. How much revenue related to this contract will Citation report in the 2019 income statement? 4-b. what is the amount of gross profit or loss to be recognized for the Altamont contract during 2019? 4-c. What will Citation report in its 2019 balance sheet related to this contract? (Ignore cash.) 5. Which method of accounting should Citation Builders, Inc adopt for its single-family houses? 6. What will Citation report in its 2018 income statement and 2018 balance sheet related to the single-family home business (ignore cash in the balance sheet)? Complete this question by entering your answers in the tabs below. Req 1 2A and Req 4A and 4B Req 3A and 3B Req 2C Req 5 Req 6A Req 3C Req 4C Req 6B 2B Which method is most equivalent to recognizing revenue at the point of delivery? Answer the following questions assuming that Citation uses the completed contract method for its office building contracts: How much revenue related to this contract will Citation report in its 2018 and 2019 income statements? What is the amount of gross profit or loss to be recognized for the Altamont contract during 2018 and 2019? (Leave no cells blank - be certain to enter "O" wherever required. Loss amounts should be indicated with a minus sign.) Show less
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Answer #1

Dear Student,

As the HOMEWORKLIB POLICY, only the first four parts should be answered. Kindly take note of it.

Part 1

Completed contract

When a long term construction contract is completed, the revenue recognized at completion should be equal to revenue recognized at the delivery point of time. To recognize revenue over the period of time requires to allocating expected revenues and costs to each construction period. The allocation basis is determine on the basis of each period’s project cost incurred in proportion to the total estimated cost of project.

Part 2

2018

2019

Contract price

24000000

24000000

Actual costs to date

4,800,000

16200000

(11,400,000+4,800,000)

Estimated costs to complete

14,400,000

5,400,000

Total estimated costs

19200000

21600000

Estimated gross profit

4800000

2400000

A. Revenue recognition:

2018 : $0

2019 : $0

total Revenues will be recognized only in 2020

B. Gross profit recognition:

2018 : $0

2019 : $0

gross profit will be recognized only in 2020

C. Citation will report in its December 31, 2018, balance sheet related to this contract = $2400000 (Costs – billings = 4800000-2400000 = 2400000)

Balance sheet (partial)

At December 31, 2018

Current assets:

Accounts receivable (2400000-2160000)

240000

Costs in excess of billings

2400000

Current liabilities:

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