Question

3.

On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,300,000. During 2018, costs of $2,100,000 were incurred with estimated costs of $4,100,000 yet to be incurred. Billings of $2,600,000 were sent, and cash collected was $2,350,000. In 2019, costs incurred were $2,600,000 with remaining costs estimated to be $3,750,000. 2019 billings were $2,850,000 and $2,575,000 cash was collected. The project was completed in 2020 after additional costs of $3,900,000 were incurred. The company's fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion. Compute the amount of revenue and gross profit or loss to be recognized in 2018, 2019, and 2020 using the percentage of completion method? (Do not round intermediate calculations. Loss amounts should be indicated with a minus sign. Round your final answers to the nearest whole dollar.) Percentages of completion Choose numerator | | Choose denominator | | % complete to date 2018 2019 2020 100.0000% 2018 To date Recognized in prior years Recognized in 2018 revenue Gross profit (loss) 2019 To date Recognized in prior years Recognized in 2019 revenue Gross profit (loss) 2020 To date Recognized in prior years Recognized in 2020 Gross profit (loss) Prepare journal entries for 2018 to record the transactions described (credit "various accounts" for construction costs incurred). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your answers to the nearest dollar amount.) Year General Journal Debit Credit 2018 Various accounts 2018 Accounts receivable Billings on construction contract 2018 Cash Accounts receivable 2018 Cost of construction Revenue from long-term contracts 2018 No journal entry required Journal entry worksheet Record the construction costs Note: Enter debits before credits General Journal Year Debit Credit 2019 Record the progress billings. Note: Enter debits before credits Year General Journal Debit Credit 2019 Record the cash collections Note: Enter debits before credits General Journal Year Debit Credit 2019 4 Record the gross profit. Note: Enter debits before credits General Journal Year Debit Credit 2019 Record the expected loss. Note: Enter debits before credits Year General Journal Debit Credit 2019 Prepare a partial balance sheet to show the presentation of the project as of December 31, 2018. (Do not round Req 2B diate calculations. Round your answers to the nearest dollar amount.) Balance Sheet (Partial) At December 31, 2018 Current assets Current liabilities Prepare a partial balance sheet to show the presentation of the project as of December 31, 2019. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.) Balance Sheet (Partial) At December 31, 2019 Current assets: Current liabilities:

Answer 1

Requirement-1: Percentage of Completion Choose Numerator Choose Denominator % complete to date % complete to date Cost incurred to date Total estimated cost to date 2018 $2,100,000 [$2100000/ $6200000] [$4700000/ $8450000] [$ ] $6,200,000 33.87% 2019 $4,700,000 $8,450,000 55.62% 2020 $8,600,000 $8,600,000 100.00% 8600000 $8600000 NOTE: Total estimated cost to date 2019 = $2,100,000 + $2,600,000-$4,700,000; Cost incurred to date for 2020-$4,700,000+ $3,900,000 = $8,600,000 2018 Recognized in Prior year Recognized in 2018 $2,811,290 To Date Construction Revenue $2,811,290$0 [$8300000 x 33.87%) $2,100,000 Construction Expense $2,100,000 S0 Gross Profit (Loss) $711,290S0 $711,290 I$2811290 - $2100000] 2019 Recognized in Prior year Recognized in 2019 $1,805,278 To Date Construction Revenue $4,616,568 $2,811,290 [Construction Revenue-$8300000 x 55.62%) $4,700,000 $2,100,000 $2,600,000 Construction Expense Gross Profit (Loss) $83,432$711,290 [$1805278 - $2600000] $794,722

Requirement-2: TRANS. 1 Account Titles 2018 2019 Debit Debit Credit Credit $2,100,000 1) $2,600,000 [Cost incurred during the year] Construction in progress $2,100,000 Various Accounts (Materials, Labor, Etc.) $2,600,000 To record construction costs 2) Accounts receivable $2,600,000 $2,850,000 [Billings during the year] Billings on construction contract $2,600,000 $2,850,000 To record progress billings [Given] $2,350,000 $2,575,000 3) Cash $2,350,000 $2,575,000 Accounts receivable To record cash collections) $2,100,000 4) Cost of construction $2,600,000 $711,290 $794,722 [Gross profit (debit); loss (credit)] $1,805,278 [Balancing figure] Construction in progress Revenue from long-term contracts $2,811,290 ss profit (if debit) loss (if credit 5) No Entry No Entry No Entry

Requirement-3 &4 Balance Sheet (Partial) 2018 2019 Current Assets: Accounts Receivable $250,000 $525,000 [2018 $2600000 $2350000; 2019 $250000+($2850000 $2575000) $2,811,290 1,805,278 ($2,850,000) Construction in Process [Revenue recognized in respective years] ($2,600,000) Less: Bilings Costs and profit in excess of billings $211,290 ($1,044,722) Current Liabilities: $500,000 750,000 [2018 $2600000- $2100000; 2019 $500000 $2850000 - $2600000] Billings in excess of costs