Answer:
2021
revenue 2,666,667
we have cost for 2,000,000
income for 666,667
2022
revenue 3.278.400
cost 2,500,000
income 778.400
2023
revenue 2,054,933
cost 3,800,000
loss 1,745,067
Explanation:
2,000,000/ (2,000,000 + 4,000,000) = 1/3
in 2021 a third of the contract was complete therefore we recognize a third of revenue:
8,000,000 x 1/3 = 2,666,667
we have cost for 2,000,000
income for 666,667
2,500,000 / (2,500,000 + 3,600,000) = 0,4098
we recognize revenues for 40.98 of the total contract value.
8,000,000 x 40.98 = 3.278.400
cost 2,500,000
income 778.400
2023
we recognize the remaining revenue.
8,000,000 - 2,666,667 - 3,278,400 = 2.054.933 revenue
cost 3,800,000
loss 1,745,067
If on February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,000,000. During 2021, costs of $2,000,000 were incurred with estimated costs of $4,000,000 yet to be incurred. The amount of revenue and gross profit or loss to be recognized in each of the three years will be:
Revenue to be recognized
Gross profit (loss) to be recognized
2018 2019 2020
Billings during the year $2,500,000 $2,750,000 $3,250,000
2018 2019 2020
Costs incurred during the year $2,000,000 $2,500,000 $3,800,000
Cumulative costs to date $2,000,000 $4,500,000 $8,300,000
Add estimated costs to complete $4,000,000 $3,600,000 $0
Estimated total costs $6,000,000 $8,100,000 $8,300,000
2020 Billings during the year=$8,000,000-$2,500,000-$2,250,000
2020 Billings during the year=$3,250,000
2019 Cumulative cost to date=$2,500,000+$2,000,000
2019 Cumulative cost to date=$4,500,000
2020 Cumulative cost to date=$4,500,000+$3,800,000
2020 Cumulative cost to date=$8,300,000
Percentage of completion
2018 $2,000,000/$6,000,000×100=33.33%
2019 $4,500,000/$8,100,000×100=55.56%
2020 $8,300,000/$8,300,000×100=100%
Contract price of this project $8,500,000
($2,500,000+$2,750,000+$3,250,000)
Less cumulative cost to date till 2020 $8,300,000
Contract estimated gross profit (loss) $200,000
2018 2019 2020
Contract value completed $2,833,050 $4,722,600 $8,500,000
Less revenue recognized $0 -$2,833,050 -$4,722,600
Revenue to be recognized $2,833,050 $1,889,550 $3,777,400
Less cost incurred $2,000,000 $2,500,000 $3,800,000
Gross profit (loss) to be recognized $833,050 -$610,450 -$22,600
2018 Contract value completed = ($8,500,000×33.33%=$2,833,050)
2019 Contract value completed = ($8,500,000×55.56%=$4,722,600)
2020 Contract value completed =($8,500,000×100%=$8,500,000)
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