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. Billings of $2,500,000 were sent, and cash collected was $2,250,000. In 2022, costs incurred were $2,500,000 with remaining costs estimated to be $3,600,000. 2022 billings were $2,750,000, and $2,475,000 cash was collected. The project was completed in 2023 after additional costs of $3,800,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion.Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years.

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critter8414 critter8414

14-02-2020
Business

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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. Billings of $2,500,000 were sent, and cash collected was $2,250,000. In 2022, costs incurred were $2,500,000 with remaining costs estimated to be $3,600,000. 2022 billings were $2,750,000, and $2,475,000 cash was collected. The project was completed in 2023 after additional costs of $3,800,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion.Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years.

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TomShelby TomShelby · Answer 1 · 2020-02-14T05:46:24+01:00

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

abiolataiwo2015 abiolataiwo2015 · Answer 2 · 2021-10-16T17:44:38+02:00

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

2018 $2,833,050

2019 $1,889,550

2020 $3,777,400

Gross profit (loss) to be recognized

2018 $833,050
2019 -$610,450
2020 -$22,600

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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