On February 1, 2016, Arrow Construction Company entered into a three-year constr

Question

On February 1, 2016, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,420,000. During 2016, costs of $2,140,000 were incurred with estimated costs of $4,140,000 yet to be incurred. Billings of $2,640,000 were sent and cash collected was $2,390,000.

      In 2017, costs incurred were $2,640,000 with remaining costs estimated to be $3,810,000. 2017 billings were $2,890,000 and $2,615,000 cash was collected. The project was completed in 2018 after additional costs of $3,940,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion.

On February 1, 2016, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,420,000. During 2016, costs of $2,140,000 were incurred with estimated costs of $4,140,000 yet to be incurred. Billings of $2,640,000 were sent and cash collected was $2,390,000.

      In 2017, costs incurred were $2,640,000 with remaining costs estimated to be $3,810,000. 2017 billings were $2,890,000 and $2,615,000 cash was collected. The project was completed in 2018 after additional costs of $3,940,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion.

Explanation / Answer

2016 2017 2018 Cost incurred during the year 2140000 2640000 3940000 Estimated Cost to complete as of year end 4140000 3810000 Billing 2640000 2890000 $        2,890,000.00 [8420000-2640000-2890000] Cash Collected 2390000 2615000 Contract Price $        8,420,000.00 $        8,420,000.00 $        8,420,000.00 Cost incurred during the year $        2,140,000.00 $        2,640,000.00 $        3,940,000.00 Estimated Cost to complete as of year end $        4,140,000.00 $        3,810,000.00 $                             -   Total Estimated Cost $        6,280,000.00 $        6,450,000.00 $        3,940,000.00 Estimated Gross Profit/(Loss) $        2,140,000.00 $        1,970,000.00 $        4,480,000.00 (Actual for 2018 Percentage Completed = 34.08% 40.93% 100.00% (Actual Cost to date/Total Estimated Cost as of year end) Revenue Recognition (Contract Price* percetage Completed) - Revenue recognised on prior years $        2,869,235.67 $            577,089.91 $        4,973,674.42 (8420000*40.93%)-2869236 Gross Profit/(Loss) $            729,235.67 $      (2,062,910.09) $        1,033,674.42 (Revenue Recognised-Actual Cst till date) JOURNAL ENTRIES 2016 2017 Construction in progress $        2,140,000.00 $        2,640,000.00 Various accounts $        2,140,000.00 $        2,640,000.00 To record construction costs. Accounts receivable $        2,640,000.00 $        2,890,000.00 Billings on construction contract $        2,640,000.00 $        2,890,000.00 To record progress billings. Cash $        2,390,000.00 $        2,615,000.00 Accounts receivable $        2,390,000.00 $        2,615,000.00 To record cash collections. Construction in progress (gross profit) $            729,235.67 Cost of construction (cost incurred) $        2,140,000.00 $        2,640,000.00 Revenue from long-term contracts (1) $ 2,869,235.67 $      577,089.91 Construction in progress (gross LOSS) $ 2,062,910.09 To record gross profit. EXTRACT OF BALANCE SHEET 2016 2017 Current Asset Accounts Receivable $        2,640,000.00 $        2,890,000.00 Construction in Progress $        2,869,235.67 $        2,062,910.09 Less: Billing $      (2,640,000.00) $      (2,890,000.00) Costs and profit in excess    of billings $            229,235.67 $         (827,089.91)

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