Exerclse 5-19 Long-term contract; revenue recognitlon over time, loss projected
ID: 2569112 • Letter: E
Question
Exerclse 5-19 Long-term contract; revenue recognitlon over time, loss projected on entlre project LO5-9] On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8.060.000. During 2018, costs of $2,020,000 were incurred with estimated costs of $4.020,000 yet to be incurred. Billings of $2,520,000 were sent, and cash collected was $2,270,000. In 2019, costs incurred were $2,520,000 with remaining costs estimated to be $3,630,000. 2019 billings were $2.770,000 and $2,495.000 cash was collected. The project was completed in 2020 after additional costs of $3,820,000 were incurred. The company's fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion. Requlrec 1. Compute the amount of revenue and gross profit or loss to be recognized in 2018, 2019, and 2020 using the percentage of completion method? 2a. Prepare journal entries for 2018 to record the transactions described (credit "various accounts" for construction costs incurred). 2b. Prepare journal entries for 2019 to record the transactions described (credit 'various accounts" for construction costs incurred). 3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2018. 3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2019 Complete this question by entering your answers in the tabs below Req 1 Req 2A Req 2B Req 3A Req 3B Prepare a partial balance sheet to show the presentation of the project as of December 31, 2019. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.) Balance Sheet (Partial) At 31, 2019 Current assets: Current liabilities: Req 3A Req 3BExplanation / Answer
1. The amount of Revenue and Gross Profit to be recognised using % of completion:-
(i) Year 2018
Total cost to be incurred= 20,20,000+ 40,20,000= 60,40,000
% of completion in 2018= 20,20,000/60,40,000= 33.44%
Revenue to be recognised in 2018= 80,60,000* 33.44%= 26,95,264
Gross Profit for the year 2018= Revenue -cost= 26,95,264-20,20,000= 6,75,264
(ii) Year 2019
Total cost expected to be incurred= 20,20,000+ 25,20,000+ 36,30,000= 81,70,000
% of completion = (20,20,000+ 25,20,000)/81,70,000= 55.6%
Total Revenue to be recognised till 2019 = 80,60,000*55.6%= 4481360
Revenue to be recognised in 2019= 44,81,360- 26,95,264= 17,86,096
Loss to be recognised= 81,70,000-80,60,000= 1,10,000
entire loss to be recognised immediately.
(iii) Year 2020
Total costs incurred= 20,20,000+ 25,20,000+ 38,20,000= 83,60,000
Total Revenue to be recognised till 2020= 80,60,000
Revenue to be recognised in 2020= 80,60,000- 44,81,360= 35,78,640
Total loss to be recognised= 83,60,000-80,60,000= 3,00,000
Loss to be recognised in 2020= 3,00,000-1,10,000= 1,90,000
Answer 2a; Journal entries
1. recognising the cost
Costruction costs a/c Dr. 20,20,000
To Various accounts 20,20,000
2. Recognising the Revenue
Customer account Dr. 26,95,264
To Revenue account 26,95,264
3. Recognising the profit
Profit on Construction a/c Dr. 6,75,264
To Profit & loss a/c 6,75,264
4. Cash Collection
Cash/Bank a/c Dr. 22,70,000
To Customer a/c 22,70,000
Answer 2b; Journal entries year 2019
1. recognising the cost
Costruction costs a/c Dr. 25,20,000
To Various accounts 25,20,000
2. Recognising the Revenue
Customer account Dr. 17,86,096
To Revenue account 17,86,096
3. Recognising the loss
Profit & loss a/c Dr. 1,10,000
To loss on construction 1,10,000
4. Cash Collection
Cash/Bank a/c Dr. 24,95,000
To Customer a/c 24,95,000
Answer 3a; Partial Balance Sheet as on 31st December, 2018
Answer 3b: Partial Balance Sheet as on 31st December, 2019
Current Assets Cash account 22,70,000 Customer account 4,25,264 Current Liabilities Various accounts 20,20,000Related Questions
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