Assume Nortel Networks contracted to provide a customer with Internet infrastruc
ID: 2416917 • Letter: A
Question
Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,650,000. The project began in 2016 and was completed in 2017. Data relating to the contract are summarized below: 2016 2017 Costs incurred during the year Estimated costs to complete as of 12/31 Billings during the year Cash collections during the year $352,000 $ 2,025,000 1,408,000 470,000 276,000 1,750,000 1,815,000 Required 1. Compute the amount of revenue and gross profit or loss to be recognized in 2016 and 2017 assuming Nortel recognizes revenue over time according to percentage of completion. (Use percentages as calculated and rounded in the table below to arrive at your final answer. Losses and expenses should be indicated with a minus sign.) 2016 2017 Estimated total gross profit (loss) 890,000$ 625,000 Percentages of completion Choose numerator Choose denominator % complete to date ÷ 2016 2017Explanation / Answer
1) Percentage of completion
2016: 352,000/(352,000 + 1,408,000) * 100 = 20%
2017: 2,025,000/(2,025,000 + 0) * 100 = 100%
2016 2017
Revenue $2,650,000*20% $ 2,120,000 (2,650,000 - 530,000)
= $ 530,000
Costs 1760000 * 20% $ 2,025,000
= $ 352,000
Gross profit $530,000 - $ 352,000 $ 2,120,000 - 2,025,000
= $ 178,000 = $ 95,000
2) Revenue for 2016 = $ 352,000 as per the matching principle
Gross profit or loss = $ 0 as revenue and costs recognised are the same
Revenue for 2017 = $ 2025000
Gross profit or loss is $0
3) Balance sheet 2016
Current assets
Accounts receivable = $ 194,000 (Amount billed - cash collections)
Gross Amount due from customers = $ 60,000 (Revenue - Amount billed)
Current liabilities
4) Balance sheet - 2016
Current Assets
Receivables = $ 352,000
Current liabilities
Payables = $ 352,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.