Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The project began...

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Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The project began...

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The project began in 2016 and was completed in 2017. Data relating to the contract are summarized below:

Required:

1. Compute the amount of revenue and gross profit or loss to be recognized in 2016 and 2017 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 2016 and 2017 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 2016 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 2016 assuming this project does not qualify for revenue recognition over time.

business accounting

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Answer 1

Answer #1

Revenue Recognition

Revenue recognition refers to the process of admitting the information of revenue earnings either for goods or services into the financial statements of the organization in monetary terms for the time period for which the financial statements are prepared.

Requirement: 1

Calculate the amount of revenue recognition for 2016 and 2017.

Hence, the revenue recognition for 2016 and 2017 is and respectively.

Calculate the amount of gross profit recognition.

Hence, the gross profit recognition for 2016 and 2017 is andrespectively.

Requirement: 2

Calculate the amount of revenue recognition for 2016 and 2017.

The project does not qualify for revenue recognition overtime. Hence, there is no revenue recognition for 2016 and 2017.

Calculate the amount of gross profit recognition for 2016 and 2017.

The gross profit in 2016 is $0, because the contract is not yet completed.

Calculate gross profit recognition 2017.

Requirement: 3

Prepare a partial balance sheet to show the information related to contract.

Working note:

Calculate the amount of costs and profit in excess of billings.

Requirement: 4

Prepare a partial balance sheet to show the information related to contract.

Working note:

Calculate the amount of billings in excess of costs.

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Answer 2

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