Requirement 5 2018 2019 2020
Costs incurred during the year $2,400,000 $3,800,000 $3,900,000
2018 2019 2020
Contract price $10 ,000,000 $10 ,000,000
Total estimated costs 8 ,000,000 10 ,300,000 10 ,100,000
Estimated gross profit (loss)
Revenue recognition:
2019: $6,200,000
= 60.19417% × $10,000,000 – 3,000,000 = $3,019,417
Problem 5–10 (concluded)
Gross profit (loss) recognition:
2018: $3,000,000 – 2,400,000 = $600,000
Problem 5–11
Requirement 1
Year Revenue
recognized Gross profit
recognized
2018 -0- – 0 –
Requirement 2
2018 2019 2020
Construction in progress 2,400,000 3,600,000 2,200,000
To record construction costs
Accounts receivable 2,000,000 4,000,000 4,000,000
Billings on construction
To record progress billings
Cash 1,800,000 3,600,000 4,600,000
To record cash collections
Construction in progress
To record gross profit
Problem 5–11 (concluded)
Requirement 3
Balance Sheet 2018 2019
Current assets:
Accounts receivable $ 200,000 $ 600,000
Note: Construction in progress in excess of billings is a contract asset.
Requirement 4
2018 2019 2020
Costs incurred during the year $2,400,000 $3,800,000
Year Revenue
recognized Gross profit
recognized
2018 -0- – 0 –
Requirement 5
2018 2019 2020
Costs incurred during the year $2,400,000 $3,800,000
Year Revenue
recognized Gross profit (loss)
recognized
2018 -0- – 0 –
Problem 5–12
Requirement 1 2018 2019 2020
Contract price $4 ,000,000 $4 ,000,000 $4 ,000,000
(actual in 2020) $ 500 ,000 $ (200 ,000) $ (250 ,000)
Year Gross profit (loss) recognized
2018 – 0 –
Requirement 2
Gross profit (loss) recognition:
2018: Revenue: (10% × $4,000,000) – 350,000 cost = $50,000
Requirement 3
Balance Sheet 2018 2019
Current assets:
Current liabilities:
Billings ($720,000) in excess
*Cumulative costs ($2,500,000) less cumulative loss recognized ($200,000) =
Problem 5–13
Requirement 1
Recognizing revenue upon completion of long-term construction contracts is
project’s costs incurred each period as a percentage of the project’s total estimated
costs.
Requirement 2
2018 2019
Contract price $20 ,000,000 $20 ,000,000
Estimated gross profit $ 4 ,000,000 $ 2 ,000,000
a. Revenue recognition: If revenue is recognized upon project completion,
b. Gross profit recognition:
If revenue is recognized upon project completion, Citation would not report
never estimates the Altamont contract will earn a gross loss, so never has to
recognize one.
Problem 5–13 (continued)
c.
Balance Sheet
At December 31, 2018
Current assets:
Accounts receivable $ 200,000
Costs ($4,000,000*) in excess
of billings ($2,000,000) 2,000,000
* If revenue is recognized upon project completion, this account would
only include costs of $4,000,000
Requirement 3
2018 2019
Contract price $20 ,000,000 $20 ,000,000
Estimated gross profit $ 4 ,000,000 $ 2 ,000,000
a. Revenue recognition:
2018: $ 4,000,000
$18,000,000
Less: 2018 revenue 5,000,000
2019 revenue $10,000,000
b. Gross profit recognition:
2018: Gross Profit: $5,000,000 – 4,000,000 = $1,000,000
Problem 5–13 (continued)
c.
Balance Sheet
At December 31, 2018
Current assets:
Accounts receivable $ 200,000
* Costs ($4,000,000) + profit ($1,000,000)
Requirement 4 2018 2019
Contract price $20 ,000,000 $20 ,000,000
Estimated gross profit $ 4 ,000,000 ($ 2 ,500,000)
a. Revenue recognition:
Total revenue recognized to date = (percentage complete)(total revenue)
= ($13,500,000 ÷ 22,500,000) x ($20,000,000)
Revenue recognized in 2019 = total – revenue recognized in prior periods
b. Gross profit recognition:
2019: Overall loss of ($2,500,000) – previously recognized gross profit of
Problem 5–13 (continued)
c.
Balance Sheet
At December 31, 2019
Current assets:
Accounts receivable
Current liabilities:
$ 1,600,000
* 2018 costs ($4,000,000) + 2018 profit ($1,000,000) + 2019 costs
Requirement 5
Citation should recognize revenue at the time of delivery, when the homes are
completed and title is transferred to the buyer. Recognizing revenue over time is
and the full sales price is not received, so control of the homes has not passed from
Citation to the buyers.
Requirement 6
Income statement:
Sales revenue (3 x $600,000) $1,800,000
Balance sheet:
Current assets:
*$600,000 x 10% = $60,000 x 5 = $300,000
Problem 5–14
REAGAN CORPORATION
Income Statement
For the Year Ended December 31, 2018
Income before income taxes and
Gain from settlement of lawsuit (net of
Net income ……………………………………………. $ 2.81
[1] Income from continuing operations before income taxes:
Unadjusted $4,200,000
Add: Gain from sale of equipment 50,000
Adjusted $3 ,680,000
*Profit recognized ($400,000 – 240,000) $160,000
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