Question

On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,240,000. During 2021, costs of $2,080,000 were incurred with estimated costs of $4,080,000 yet to be incurred. Billings of $2,580,000 were sent, and cash collected was $2.330,000. In 2022, costs incurred were $2,580,000 with remaining costs estimated to be $3,720,000. 2022 billings were $2.830,000 and $2,555,000 cash was collected. The project was completed in 2023 after additional costs of $3,880,000 were incurred. The company's fiscal year end is December 31. Arrow recognizes revenue over time according to percentage of completion. Required: 1. Compute the amount of revenue and gross profit or loss to be recognized in 2021, 2022 and 2023 using the percentage of completion method. 2a. Prepare journal entries for 2021 to record the transactions described (credit 'various accounts for construction costs incurred). 2b. Prepare journal entries for 2022 to record the transactions described (credit "various accounts for construction costs incurred). 30. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2021. 3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2022 Complete this question by entering your answers in the tabs Reg 1 Req ZA Reg 2B Compute the amount of revenue and gross profit or loss to be recognized in 2021 2022 and 2023 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 ote to date Choose numerator 33.7662% 2021 2022 $ $ 2.080,000 4,600,000 55 6000

Answer 1

1	Percentage of completion=Cost incurred during the year/Total estimated cost
	Revenue to be recognized=(Contract price*Percentage of completion)-Revenue already recognized
	Gross profit/(loss) to be recognized=(Estimated gross profit/(Loss) *percentage of completion)-Gross profit already recognized
	Estimated gross profit/(loss)=Contract price-Total estimated costs
				2021	2022	2023
	a) Contract price			8240000	8240000	8240000
	b) Actual cost to date			2080000	4660000	8540000
					(2080000+2580000)	(4660000+3880000)
	c) Estimated costs to complete			4080000	3720000	0
	d) Total estimated costs (b)+©			6160000	8380000	8540000
	e) Estimated gross profit/(loss) (a)-(d)			2080000	-140000	-300000
	f) Percentage of completion (b)/(d)			33.77%	55.61%	100.00%
	g) Revenue to be recognized			2782338	1737662	3720000
				(8240000*33.77%)-0	Note:1	(Note:2)
	h) Gross profit/(loss) to be recognized			702338	-842338	-160000
				(2080000*33.77%)-0	(Note:1)	(Note:2)
	Note:1
	If estmated gross loss appears,then entire loss has to be recognized in that year itself irrespective of percentage of completion method
	Hence,loss to be recognized=140000+702338=$ 842338
	Revenue to be recognized=Expense to be recognized-loss to be recogized=2580000-842338=1737662
	Note:2
	Hence,loss to be recognized=-300000+140000=$ -160000
	Revenue to be recognized=Expense to be recognized-loss to be recogized=3880000-160000=3720000
			Percentages of completion
	Year		Actual cost to date	/	Estimated total costs	=	% complete to date
	2021		2080000	/	6160000	=	33.7662%
	2022		4660000	/	8380000	=	55.6086%
	2023		8540000	/	8540000	=	100.0000%
				2021
			To date	Recognized in prior years	Recognized in 2021
			a	b	a-b
	Construction revenue		2782338	0	2782338
	Construction expense		2080000	0	2080000
	Gross profit (loss)		702338	0	702338
				2022
			To date	Recognized in prior years	Recognized in 2022
			a	b	a-b
	Construction revenue				1737662
	(Note:1)
	Construction expense		4660000	2080000	2580000
	Gross profit (loss)		-140000	702338	-842338
				2023
			To date	Recognized in prior years	Recognized in 2023
			a	b	a-b
	Construction revenue				3720000
	(Note:2)
	Construction expense		8540000	4660000	3880000
	Gross profit (loss)		-300000	-140000	-160000
	Journal entries:
2-a.	Date	Account Titles and Explanation			Debit	Credit
	2018	Construction in progress			2080000
		Various accounts				2080000
		(Construction cost incurred)
		Accounts receivable			2580000
		Billings on construction contract				2580000
		(Billings during the year)
		Cash			2330000
		Accounts receivable				2330000
		(Cash collections during the year)
		Construction in progress			702338
		Cost of construction			2080000
		Revenue from long-term contracts				2782338
		(Gross profit and revenue recognized)