On February 1, 2016, Arrow Construction Company entered into a three-year constr
ID: 2417773 • Letter: O
Question
On February 1, 2016, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,570,000. During 2016, costs of $2,190,000 were incurred with estimated costs of $4,190,000 yet to be incurred. Billings of $2,690,000 were sent and cash collected was $2,440,000.
In 2017, costs incurred were $2,690,000 with remaining costs estimated to be $3,885,000. 2017 billings were $2,940,000 and $2,665,000 cash was collected. The project was completed in 2018 after additional costs of $3,990,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion
1) Compute the amount of revenue and gross profit or loss to be recognized in 2016, 2017, and 2018 using the percentage-of-completion method?
2) the percentage of completion for the 3 years
3) Prepare journal entries for 2016 to record the transactions described (credit "various accounts" for construction costs incurred)
4) Prepare journal entries for 2017 to record the transactions described (credit "various accounts" for construction costs incurred).
5) Prepare a partial balance sheet to show the presentation of the project as of December 31, 2016
6) Prepare a partial balance sheet to show the presentation of the project as of December 31, 2017
On February 1, 2016, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,570,000. During 2016, costs of $2,190,000 were incurred with estimated costs of $4,190,000 yet to be incurred. Billings of $2,690,000 were sent and cash collected was $2,440,000.
In 2017, costs incurred were $2,690,000 with remaining costs estimated to be $3,885,000. 2017 billings were $2,940,000 and $2,665,000 cash was collected. The project was completed in 2018 after additional costs of $3,990,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion
1) Compute the amount of revenue and gross profit or loss to be recognized in 2016, 2017, and 2018 using the percentage-of-completion method?
2) the percentage of completion for the 3 years
3) Prepare journal entries for 2016 to record the transactions described (credit "various accounts" for construction costs incurred)
4) Prepare journal entries for 2017 to record the transactions described (credit "various accounts" for construction costs incurred).
5) Prepare a partial balance sheet to show the presentation of the project as of December 31, 2016
6) Prepare a partial balance sheet to show the presentation of the project as of December 31, 2017
Explanation / Answer
Answer.1 Computation of the amount of revenue and gross profit or loss to be recognized in 2016, 2017, and 2018 using the percentage-of-completion method.
Estimated Gross profit = A-B
(Actual in 2018)
Gross Profit(Loss) Recognition:
% of completion = Actual Cost to date/ Total Estimated cost
Gross Profit(Loss)= % of completion*Estimated Gross profit
2016 = $2,190,000/$6,380,000 = 34.33%
Gross Profit(Loss)=34.33%*$2,190,000=$751,827
2017 = $4,880,000/$8,765,000 = 55.68%
Gross Profit(Loss)= 55.68%*($195,000)=($108,576)
2018
Gross Profit(Loss)= ($300,000)-($751,827+($108,576))=($943,251)
Answer 2 The percentage of completion for the 3 years
2016 =$8,570,000*34.33% =$2,942,081
2017=$8,570,000*55.68%=$4,771,776-$2,942,081=$1,829,695
2018= $8,570,000-($2,942,081+$1,829,695)=$3,798,224
Particulars 2016 2017 2018 Contract Price( A) $8,570,000 $8,570,000 $8,570,000 Actual Cost to date $2,190,000 $4,880,000 $8,870,000 Estimated cost to complete $4,190,000 $3,885,000 0 Total Estimated cost (B) $6,380,000 $8,765,000 $8,870,000Estimated Gross profit = A-B
(Actual in 2018)
$2,190,000 ($195,000) ($300,000)Related Questions
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