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Problem 5-12 Long-term contract; revenue recognized over time; loss projected on entire project [LO5-9]

Curtiss Construction Company, Inc., entered into a fixed-price contract with Axelrod Associates on July 1, 2018, 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 $4,000,000. Curtiss concludes that the contract does not qualify for revenue recognition over time. The building was completed on December 31, 2020. 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:

	At 12-31-2018				At 12-31-2019				At 12-31-2020
Percentage of completion		10	%			60	%			100	%
Costs incurred to date	$	350,000			$	2,500,000			$	4,250,000
Estimated costs to complete		3,150,000				1,700,000				0
Billings to Axelrod, to date		720,000				2,170,000				4,000,000

Required:
1. Compute gross profit or loss to be recognized as a result of this contract for each of the three years.
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 2018 and 2019 as either cost in excess of billings or billings in excess of costs.

Answer is complete but not entirely correct Complete this question by entering your answers in the tabs below. Req 3 Req 1 and 2 1. Compute gross profit or loss to be recognized as a result of this contract for each of the three years. 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. (Leave no cells blank be certain to enter "O" wherever required. Loss amounts should be indicated with a minus sign.) Show less▲ eq eq Gross Profit (Loss) Recognized Over Time Gross Profit (Loss) Year Recognized letion 2018 50,000 (250,000) 2019 (200,000) $ (50,000) S (50,000) 2020 (250,000) Total project profit (loss)S (250,000) Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Req 1 and 2 Rea 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 2018 and 2019 as either cost in excess of billings or billings in excess of costs. 2018 Balance Sheet (Partial) 2019 Current assets: Costs less loss in excess of billings $ 30,000 Current liabilities: Billings in excess of costs and profit 320,000 Reg 1 and 2

Answer 1

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Requirement -1	2018	2019	2020
Contract price	$                                   4,000,000	$                                                                          4,000,000	$4,000,000
Actual costs to date	$                                       350,000	$                                                                          2,500,000	$4,250,000
Estimated costs to complete	$                                   3,150,000	$                                                                          1,700,000	$              -
Total estimated costs	$                                   3,500,000	$                                                                          4,200,000	$4,250,000
Estimated gross profit
(actual in 2020)	$                                       500,000	$                                                                            -200,000	$ -250,000
Gross profit (loss) recognized:
Year 2018	$                                                 -
Year 2019	$                                     -200,000
Year 2020	$                                       -50,000
Requirement -2
Gross profit (loss) recognized:
2018	($4,000,000*10%)-$350,000	$                                                                                50,000
2019	($200,000)-$50,000	$                                                                            -250,000
2020	($250,000)-($2,00,000)	$                                                                              -50,000
Requirement -3
Balance Sheet
	Year 2018	Year 2019
Current Assets:
Costs less Loss ($2,300,000) in excess of billing $2,170,000		$                                                                              130,000
Current Liabilities:
Billings ($720,000) in excess of cost and profit $400,000	$                                       320,000