Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,910,000. The project began...
Assume Nortel Networks contracted to provide a customer with
Internet infrastructure for $2,910,000. The project began in 2021
and was completed in 2022. Data relating to the contract are
summarized below:
| 2021 | 2022 | |||||
| Costs incurred during the year | $ | 376,000 | $ | 2,265,000 | ||
| Estimated costs to complete as of 12/31 | 1,504,000 | 0 | ||||
| Billings during the year | 535,000 | 1,810,000 | ||||
| Cash collections during the year | 500,000 | 1,845,000 | ||||
Required:
1. Compute the amount of revenue and gross profit or loss to be
recognized in 2021 and 2022 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 2021 and 2022 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 2021
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 2021
assuming this project does not qualify for revenue recognition over
time.
Homework Answers
1.
Compute revenue as follows:
| Particulars | 2021 | 2022 |
| Cost incurred | 376000 | |
| Estimated cost to complete | 1504000 | |
| Total cost | 1880000 | |
| % completion | 20% | |
| Total project revenue | 2910000 | |
| Revenue for the year | 582000 | 2328000 |
Compute gross profit as follows:
| Particulars | 2021 | 2022 |
| Revenue for the year | 582000 | 2328000 |
| Less: Cost incurred | -376000 | -2265000 |
| Gross profit | 206000 | 63000 |
2.
When the project does not qualify for revenue recognition over time, the complete revenue is recognized on completion of the project.
| Particulars | 2021 | 2022 |
| Revenue for the year | - | 2910000 |
| Less: Cost incurred | -376000 | -2265000 |
| Gross profit (loss) | -376000 | 645000 |
3.
Partial balance sheet if revenue is recognized overtime as follows:
| Balance Sheet (Partial) | |
| At December31, 2021 | |
| Current assets: | |
| Accounts receivable (535000-500000) | 35000 |
| Cost and profit in excess of billings (582000 - 535000) | 47000 |
| Current liabilities: | |
4.
Partial balance sheet if revenue is not recognized overtime as follows:
| Balance Sheet (Partial) | |
| At December31, 2021 | |
| Current assets: | |
| Accounts receivable(535000-500000) | 35000 |
| Current liabilities: | |
| Billings in excess of costs (535000-376000) | 159000 |
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Assume Nortel Networks contracted to provide a customer with
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Assume Nortel Networks contracted to provide a customer with
Internet infrastructure for $2,600,000. The project began in 2021
and was completed in 2022. Data relating to the contract are
summarized below:
2021
2022
Costs incurred during the year
$
348,000
$
1,995,000
Estimated costs to complete as of 12/31
1,392,000
0
Billings during the year
465,000
1,740,000
Cash collections during the year
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1,810,000
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1. Compute the amount of revenue and gross profit or loss to be
recognized in...
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