Exercise 5–16
The FASB Accounting Standards Codification® represents the single source of
authoritative U.S. generally accepted accounting principles.
Requirement 1
Regarding disclosures that are required with respect to performance
the appropriate citation is:
Requirement 2
Regarding disclosures that are required with respect to uncollectible accounts
FASB ASC 606–10–50–4b: “Revenue from Contracts with
Requirement 3
Regarding disclosures that are required with respect to contract assets and
contract liabilities, the appropriate citation is:
Exercise 5–17
Requirement 1
2018 2019
Contract price $2 ,000,000 $2 ,000,000
Gross profit (estimated in 2018) $ 500 ,000 $ 125 ,000
Revenue recognition:
2018: $ 300,000
= 20% × $2,000,000 = $400,000
Gross profit recognition:
2018: $400,000 – 300,000 = $100,000
2018: $ 300,000
= 20% × $500,000 = $100,000
Requirement 2
2018: $0 (contract not yet completed)
Exercise 5–17 (concluded)
Requirement 3
Balance Sheet
At December 31, 2018
Current assets:
Accounts receivable $ 130,000
* Costs ($300,000) + profit ($100,000)
Requirement 4
Balance Sheet
At December 31, 2018
Current assets:
Exercise 5–18
Requirement 1
($ in millions) 2018 2019 2020
Contract price $220 $220 $220
Revenue recognition:
2018: $40
= 25% × $220 = $55
$180
2020: $220 – ($55 + $91.67) = $73.33
Gross profit (loss) recognition:
2018: $55 – 40 = $15
completion:
2018: $40
= 25% × $60 = $15
$160
Exercise 5–18 (concluded)
Requirement 2
Year Revenue
recognized Gross profit (loss)
recognized
2018 – 0 – – 0 –
Requirement 3
2019 Revenue recognition:
2019 Gross profit (loss) recognition:
$77 – 80 = $(3)
Note: Also can calculate gross profit directly using the percentage of
completion:
Exercise 5–19
Requirement 1
2018 2019 2020
Contract price $8 ,000,000 $8 ,000,000 $8 ,000,000
(actual in 2020) $2 ,000,000 $ (100 ,000) $ (300 ,000)
Revenue recognition:
2018: $2,000,000
2020: $8,000,000 – ($2,666,667 + 1,777,778) = $3,555,555
Gross profit (loss) recognition:
2018: $2,666,667 – 2,000,000 = $666,667
Exercise 5–19 (continued)
Requirement 2
2018 2019
Construction in progress 2,000,000 2,500,000
Various accounts 2,000,000 2,500,000
To record gross profit
Cost of construction (1) 2,544,445
To record expected loss
(1) Revenue recognized in 2019 $1,777,778
Requirement 3
Balance Sheet 2018 2019
Current assets:
Accounts receivable $250,000 $525,000
of costs less loss ($4,400,000**) $850,000
* Costs ($2,000,000) + profit ($666,667)
Exercise 5–20
Requirement 1
Year Revenue
recognized
Gross profit (loss)
recognized
Total $8,000,000 $(300,000)
Requirement 2
2018 2019
Construction in progress 2,000,000 2,500,000
Various accounts 2,000,000 2,500,000
Loss on long-term contract 100,000
Construction in progress 100,000
To record expected loss
Exercise 5–20 (concluded)
Requirement 3
Balance Sheet 2018 2019
Current assets:
Accounts receivable $250,000 $525,000
loss ($4,400,000*) $850,000
* Costs ($2,000,000 + 2,500,000) – loss ($100,000)