Question

Only requirement 2 please. Thank you

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 2018 2019 Costs incurred during the year Estinated costs to complete as of 12/31 Billings during the year Cash collections during the year $356,000 $2,135,000 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. 2. Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 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 2018 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 2018 assuming this project does not qualify for revenue recognition over time.

Answer 1

Solution

Nortel Networks

Requirement 2:

Computation of the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming this project does not qualify for revenue recognition over time:

The contract does not quality for revenue recognition in 2018- gross profit for 2018 is zero, as the contract is not yet completed.

Revenue for 2019 - $2,700,000

Gross profit, 2019 = revenue – total estimated cost

= $2,700,000 - $2,491,000 = $209,000

Workings:

	2018	2019
Contract Price	$2,700,000	$2,700,000
Actual Costs to Date	$356,000	$2,491,000
Estimated Cost to Complete	$1,424,000	0
Total Estimated Costs	$1,780,000	$2,491,000
Gross profit estimated in 2018	$920,000	$209,000