Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,700,000. The project began...

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Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,700,000. The project began in 2018 and was completed in 2019. Data relating to the contract are summarized below: 2019 2018 356,000 $2,135,000 Costs incurred during the year Estimated costs to complete as of 12/31 Billings during the year Cash collections during the year 1,424,000 475,000 1,760, 000 278,000 1,820,000 Required: 1. Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming Nortel recognizes revenue over time according to percentage of completion.

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Answer 1

Answer #1

	2018	2019
Total cost to be incurred	356000+1424000=1780000	2135000
% of completion [total cost incurred till date /total cost to be incurred]	356000/1780000 .20 or 20%	2135000/2135000 100%
Gross profit	2700000-1780000=920000	2700000-2135000=565000

Revenue	[2700000*.20]-0 540000	[2700000*100%]-540000 2700000-540000 2160000
gross profit to be recognized	[920000*20%]- 0 184000-0 184000	[565000*100%]- 184000 565000-184000 381000

**Revenue recognized = [contract price * % of completion] - revenue previously recognized

**gross profit recognized = [ total gross profit *% of completion ] - gross profit previously recognized

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Answer 2

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