ecognition 6 Curtiss Construction Company, Inc.. entered into a fixed-price cont
ID: 2559224 • Letter: E
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ecognition 6 Curtiss Construction Company, Inc.. entered into a fixed-price contract with Axelrod Associates on July 1, 2018, to construct a four story office building. Al that time, Curtiss estimated that it would take between two and three years to complete the project. The total contract price for construction of the building is $5,020,000. Curtiss concludes that the contract does not qualify for revenue recognition over time. The bulding was completed on December 31, 2020. Estimated percentage of completion, accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Axelrod under the contract were as follows At:12-31-2018, at 12-31-2019 iat 12-31-292? Percentage of completion Costs incuered to date Estinated costs to complete Billings to Ase Inod, to date 5 376,000 53,180,oce 5,457,000 2,210,0e 2,518,000 ,384,009 975,000 5,920,0s0 Required: 1. Compute gross profit or loss to be recognized as a result of this contract for each of the three years 2. Assuming Curtiss recagnizes revenue over time according to percentage of completion, compute gross profit or loss to be Assuming Curtiss recognizes revenue over time according to percentage of completion, compute the amount to be shown in the balance sheet at the end of 2018 and 2019 as eilther cost in excess of billings or billings in excess of costs Complete this question by entering your answers in the tabs below. Req land 2Re 3 1. Compute gross profit or loss to be recognized as a result of this contract for each of the three years. 2. Assuming Curtiss recognizes revenue over time according to percentage of completion, compute gross profit or loss to be recognized in each of the three years. (Leave no cells blank-be certain to enter 0 wherever required. Loss amounts should be indicated wt minus sign) Req 2 Gross Profit (Losa) Recognized Gross Profit (Loss) Recognized Year 2019 Prey 3of4 NeatExplanation / Answer
1) Gross profit or loss to be recognized for each year under contract completion method is calculated as follows:-
Year 2018 Estimated Profit = Contract Price - Cost incurred to date - Estimated remaining costs
= $5,020,000 - $376,000 - $3,384,000 = $1,260,000
As there is an expected profit of $1,260,000 from the contract in 2018, no profit or loss will be recognized in 2018 as the construction is not yet completed.
Profit to be recognized in 2018 = $0
Year 2019 = Contract Price - Cost incurred to date - Estimated remaining costs
= $5,020,000 - $3,180,000 - $2,210,000 = ($370,000) loss
As there is a loss of $370,000. the whole amount of loss will be recognized in 2019.
Loss to be recognized in 2019 = $370,000
Year 2020 = Contract Price - Cost incurred to date - Estimated remaining costs
= $5,020,000 - $5,457,000 - $0 = ($437,000) loss
In 2020 an additional loss of $67,000 ($437,000-$370,000) will be recognized in 2020.
Loss to be recognized in 2020 = $67,000
2) Gross profit or loss to be recognized for each year under percentage of completion method is calculated as follows:-
Profit to be recognized in 2018 = Estimated Profit as calculated in req 1*Percentage completed
= $1,260,000*10% = $126,000
Year 2019 Estimated Loss ( as calculated in req 1) = $370,000
Profit already recognized in 2018 $126,000
Loss to be recognized in 2019 = $370,000+$126,000 = $496,000
Loss to be recognized in 2020 = $67,000 (same as requirement 1)
Table showing profit or loss for each of three years (Amounts in $)
Req 1 Gross Profit (Loss) recognized ("Upon Completion")
3) Revenue to be recognized for 2018 = $5,020,000*10% = $502,000
Billings in excess of revenue 2018 = $975,000 - $502,000 = $473,000
Revenue to be recognized upto 2019 = $5,020,000*60% = $3,012,000
Revenue in excess of billings = $3,012,000 - $2,510,000 = $502,000
YearReq 1 Gross Profit (Loss) recognized ("Upon Completion")
Req 2 Gross Profit (Loss) recognized ("Over Time") 2018 0 126,000 2019 (370,000) (496,000) 2020 (67,000) (67,000) Total project profit (loss) (437,000) (437,000)Related Questions
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