Curtiss Construction Company, Inc., entered into a fixed-price contract with Axelrod Associates on July 1, 2018, to construct a four-story office building. At 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 $4,540,000. Curtiss concludes that the contract does not qualify for revenue recognition over time. The building 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 At 12-31-2020
Percentage of completion 10% 60 % 100 %
Costs incurred to date $ 368,000 $ 2,898,000 $ 4,889,000
Estimated costs to complete 3,312,000 1,932,000 0
Billings to Axelrod, to date 729,000 2,350,000 4,540,000
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 recognizes revenue over time according to percentage of completion, compute gross profit or loss to be recognized in each of the three years.
3. 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 either cost in excess of billings or billings in excess of costs.
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 with a minus sign.)
Year Req 1 Gross Profit (Loss) Recognized ("Upon Completion") Req 2 Gross Profit (Loss) Recognized ("Over Time")
2018 $0 $86,000
2019 $(290,000) $ (376,000)
2020 $(59,000) $(86,000)
Total project profit (loss) $(349,000) $(376,000)
?Req 3
2.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 either cost in excess of billings or billings in excess of costs.
Balance Sheet (Partial) 2018 2019
Current assets:
Costs less loss in excess of billings
Current liabilities:
Billings in excess of costs and profit $275,000
Please calculate Costs less loss in excess of billings in 2019.
Solution
| Particular | 2018 | 2019 | 2020 |
| Estimated total cost=cost incurred during the year+estimated cost to complete | 368,000+3,312,000=3,680,000 | 2,898,000+1,932,000=4,830,000 | 4,889,000+0=4,889,000 |
| Degree of completion | 10% | 60% | 100% |
| Revenue to be recognised= Contract price*degree of completion | 4540,000*10%=454,000 | 4540,000*60%=2724,000 | 4540,000*100%= 4540,000 |
| less cost incurred | 3,680,000 | 4,830,000 | 4,889,000 |
| Gross profit/loss | -3226,000 | -2106,000 | -349,000 |
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