Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,500,000. The project began in 2018 and was completed in 2019. Data relating to the contract are summarized b...
Assume Nortel Networks contracted to provide a customer with
Internet infrastructure for $2,500,000. 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 | $ | 340,000 | $ | 1,940,000 | ||
| Estimated costs to complete as of 12/31 | 1,360,000 | 0 | ||||
| Billings during the year | 451,000 | 1,720,000 | ||||
| Cash collections during the year | 270,000 | 1,800,000 | ||||
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.
Homework Answers
| Ans 1) | Percentages of completion | |||
| Numerator/ | Denominator = | % complete to date | ||
| Cost incurred to date/ | Total estimated cost = | |||
| 2018 | 340,000 | 1700000 | 20% | |
| 2019 | 2,280,000 | 2,280,000 | 100% | |
| 2018 | ||||
| To date | Recognized in pys | Recognized in 2018 | ||
| Construction revenue | 500000 | 0 | 500000 | |
| Construction expense | 340000 | 0 | 340000 | |
| Gross profit (loss) | 160000 | 0 | 160000 | |
| 2019 | ||||
| To date | Recognized in pys | Recognized in 2018 | ||
| Construction revenue | 2,500,000 | 500000 | 2,000,000 | |
| Construction expense | 2,280,000 | 340000 | 1,940,000 | |
| Gross profit (loss) | 220,000 | 160000 | 60000 | |
| Ans 2) | Revenue | Gross profit (Loss) | ||
| 2018 | 0 | 0 | ||
| 2019 | 2,500,000 | 220,000 | ||
| Ans 3) | BALANCE SHEET PARTIAL-DECEMBER 31, 2018: | |||
| Current assets: | ||||
| Costs and profit in excess of billings | 49000 | |||
| Accounts receivable | 181000 | |||
| Ans 4) | BALANCE SHEET PARTIAL-DECEMBER 31, 2018: | |||
| Current assets: | ||||
| Accounts receivable | 101000 | |||
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