Question

Exercise 6-23 (Static) Income (loss) recognition; Long-term contract; revenue recognition over time vs. upon project completion [LO6-9] Brady Construction Company contracted to build an apartment complex for a price of $5,000,000. Construction began in 2021 and was completed in 2023. The following is a series of independent situations, numbered 1 through 6, involving differing costs for the project. All costs are stated in thousands of dollars.

Situation 1 2 3 4 Costs Incurred During Year 2021 2022 2023 1,500 2,100 900 1,500 900 2,400 1,500 2,100 1,600 500 3,000 1,000 500 3,000 1,300 500 3,000 1,800 Estimated costs to Complete (As of the End of the Year) 2021 2022 2023 3,000 900 3,000 2,400 3,000 1,500 3,500 875 3,500 1,500 4,600 1,700 LILIT Required: Complete the following table. (Enter answers in dollars. Do not round intermediate calculations. Round your final answers to the nearest whole dollar. Negative amounts should be indicated by a minus sign.) Situation 1 Answer is not complete. Gross Profit (Loss) Recognized Revenue Recognized Revenue Recognized Over Time Upon Completion 2021 2022 2023 2021 2022 2023 $ 166,667 $ 233,333 $ 100,000 $ 500,000 166,667 (66,667) 100,000 200,000 166,667 (237,255) ► 129,412 (200,000) 125,000 375,000 500,000 125,000 125,000 X 200,000 200,000 (9,804) (34,615) 165,385 9,804 34,615 165,385 2 3 4 Ол 6

Answer 1

FOR 2021

SITUATION	COST INCURED DURING THE YEAR [A]	ESTIMATE COST TO COMPLETE [B]	TOTAL COST INCURED [C=A+B]	% OF COMPLETION [D= A/C *100	TOTAL CONTRACT REVENUE [E]	GROSS MARGIN [F=E-C	GROSS PROFT RECOGNIZED [G = F*D]
1	1,500,000	3,000,000	4,500,000	33.33%	5,000,000	500,000	166,667
2	1,500,000	3,000,000	4,500,000	33.33%	5,000,000	500,000	166,667
3	1,500,000	3,000,000	4,500,000	33.33%	5,000,000	500,000	166,667
4	500,000	3,500,000	4,000,000	12.50%	5,000,000	1,000,000	125,000
5	500,000	3,500,000	4,000,000	12.50%	5,000,000	1,000,000	125,000
6	500,000	4,600,000	5,100,000	9.80%	5,000,000	(100,000)	(100,000)

FOR 2022

SITUATION	COST INCURED DURING THE YEAR [A]	ESTIMATE COST TO COMPLETE [B]	TOTAL COST INCURED [C=A+B]	% OF COMPLETION [D= A/C *100	TOTAL CONTRACT REVENUE [E]	GROSS MARGIN [F=E-C	GROSS PROFT RECOGNIZED [G = F*D]	GROSS PROFIT ALREADY RECOGNIZED [H]	GROSS PROFIT / (LOSS) RECOGNIZED [I=G-H
1	3,600,000	900,000	4,500,000	80%	5,000,000	500,000	400,000	166,667	233,333
2	2,400,000	2,400,000	4,800,000	50%	5,000,000	200,000	100,000	166,667	(66,667)
3	3,600,000	1,500,000	5,100,000	70.59%	5,000,000	(100,000)	(100,000)	166,667	(266,667)
4	3,500,000	875,000	4,375,000	80%	5,000,000	675,000	500,000	125,000	375,000
5	3,500,000	1,500,000	5,000,000	70%	5,000,000	0	0	125,000	(125,000)
6	3,500,000	1,700,000	5,200,000	67.31%	5,000,000	(200,000)	(134,615)	(100,000)	(100,000)

FOR 2023

SITUATION	COST INCURED DURING THE YEAR [A]	TOTAL CONTRACT REVENUE [B]	GROSS MARGIN[C=B-A]	GROSS PROFIT TO BE RECOGNIZED[D=C]	GROSS PROFT ALREADY RECOGNIZED [E ]	GROSS PROFIT ALREADY RECOGNIZED [F]	TOTAL GROSS PROFIT [G=E+F]	GROSS PROFIT [H=C-G]
1	4,500,000	5,000,000	500,000	500,000	166,667	233,333	400,000	100,000
2	4,800,000	5,000,000	200,000	200,000	166,667	(66,667)	100,000	100,000
3	5,200,000	5,000,000	(200,000)	(200,000)	166,667	(266,667)	(100,000)	(100,000)
4	4,500,000	5,000,000	500,000	500,000	125,000	375,000	500,000	0
5	4,800,000	5,000,000	200,000	200,000	125,000	(125,000)	0	200,000
6	5,300,000	5,000,000	(300,000)	(300,000)	(100,000)	(100,000)	(200,000)	(100,000)

FINAL ANSWER

GROSS PROFIT /(LOSS) RECOGNIZED

SITUATION	Revenue Recognized overtime	Revenue Recognized upon completion
	2021	2022	2023	2021	2022	2023
1	166,667	233,333	100,000	0	0	500,000
2	166,667	(66,667)	100,000	0	0	200,000
3	166,667	(266,667)	(100,000)	0	(100,000)	(100,000)
4	125,000	375,000	0	0	0	500,000
5	125,000	(125,000)	200,000	0	0	200,000
6	(100,000)	(100,000)	(100,000)	(100,000)	(100,000)	(100,000)

bracket shows loss

hope you got the answer

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