Question

On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,125,000. During 2018, costs of $2,050,000 were incurred, with estimated costs of $4,050,000 yet to be incurred. Billings of $2,560,000 were sent, and cash collected was $2,300,000. In 2019, costs incurred were $2,560,000 with remaining costs estimated to be $3,675,000. 2019 billings were $2,810,000, and $2,525,000 cash was collected. The project was completed in 2020 after additional costs of $3,850,000 were incurred. The company’s fiscal year-end is December 31. This project does not qualify for revenue recognition over time.

On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,125,000. During 2018, costs of $2,050,000 were incurred, with estimated costs of $4,050,000 yet to be incurred. Billings of $2,560,000 were sent, and cash collected was $2,300,000. In 2019, costs incurred were $2,560,000 with remaining costs estimated to be $3,675,000. 2019 billings were $2,810,000, and $2,525,000 cash was collected. The project was completed in 2020 after additional costs of $3,850,000 were incurred. The company's fiscal year-end is December 31. This project does not qualify for revenue recognition over time. Required: 1. Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years 2a. Prepare journal entries for 2018 to record the transactions described (credit "various accounts for construction costs incurred). 2b. Prepare journal entries for 2019 to record the transactions described (credit "various accounts for construction costs incurred). 3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2018. 3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2019. Complete this question by entering your answers in the tabs below. Req 1 Reg 2A Reg 2B Req ЗА Reg 3B Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years. (Loss amounts should be indicated with a minus sign.) Year Revenue recognized Gross profit (loss) recognized 2018 2019 2020 Total 8,125,000 8,125,000 (175,000) (175,000) $ $

Answer 1

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Part 1
	2018	2019	2020
Contract price	$                                                    8,125,000	$                                                                                 8,125,000	$                                                                                 8,125,000
Actual costs to date	$                                                    2,050,000	$                                                                                 4,610,000	$                                                                                 8,460,000
Estimated costs to complete	$                                                    4,050,000	$                                                                                 3,675,000	$                                                                                                -
Total estimated costs	$                                                    6,100,000	$                                                                                 8,285,000	$                                                                                 8,460,000
Estimated gross profit
(actual in 2023)	$                                                    2,025,000	$                                                                                   -160,000	$                                                                                   -335,000
	Revenue Recognition:	Gross profit (loss) recognized:
Year 2018	$                                                                   -	$                                                                                                -
Year 2019	$                                                                   -	$                                                                                   -160,000
Year 2020	$                                                    8,025,000	$                                                                                   -175,000
Total	$                                                    8,025,000	$                                                                                   -335,000
Part 2a and 2b
		Year 2018	Year 2019
Construction in Progress		$                                                                                 2,050,000	$                                                                                 2,560,000
Various Accounts		$                                                                                 2,050,000	$                                                                                 2,560,000
Accounts Receivable		$                                                                                 2,560,000	$                                                                                 2,810,000
Billing on Construction Contracts		$                                                                                 2,560,000	$                                                                                 2,810,000
Cash		$                                                                                 2,300,000	$                                                                                 2,525,000
Accounts Receivable		$                                                                                 2,300,000	$                                                                                 2,525,000
Loss on Long term Contracts			$                                                                                     160,000
Construction in progress			$                                                                                     160,000
Requirement 3a and 3b
		Year 2018	Year 2019
Current Assets:
Accounts Receivable		$                                                                                    260,000	$                                                                                     545,000
Current Liabilities:
Billings $2,560,000 in excess of costs $2,050,000		$                                                                                    510,000
Billing $5,370,000 in excess of cost less loss			$                                                                                     920,000
$4,610,000-$160,000=$4,450,000