FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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### Educational Scenario: Revenue and Gross Profit Calculation for a Construction Project
#### Background Information
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. The project timeline and financial details over the years are as follows:
- **2021**:
- Costs incurred: $2,000,000
- Estimated remaining costs: $4,000,000
- Billings sent: $2,500,000
- Cash collected: $2,250,000
- **2022**:
- Costs incurred: $2,500,000
- Estimated remaining costs: $3,600,000
- Billings sent: $2,750,000
- Cash collected: $2,475,000
- **2023**:
- Costs incurred: $3,800,000
The project was completed in 2023 and Arrow Construction Company does not qualify for revenue recognition over time. The company’s fiscal year-end is December 31.
#### Required Calculations and Entries
1. **Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years.**
2. **Prepare journal entries:**
- **2021:** Record transactions for construction costs incurred (credit "various accounts" for construction costs incurred).
- **2022:** Record transactions for construction costs incurred (credit "various accounts" for construction costs incurred).
3. **Prepare partial balance sheets:**
- **2021:** Show the project's presentation as of December 31, 2021.
- **2022:** Show the project's presentation as of December 31, 2022.
#### Instructions for Students
Complete these requirements by entering your answers in the tabs provided below.
##### Tabulated Summary for Required 1
| Year | Revenue Recognized | Gross Profit (Loss) Recognized |
|------|-------------------|-------------------------------|
| 2021 | | |
| 2022 | | |
| 2023 | | |
| **Total** | | |
*(Loss amounts should be indicated with a minus sign.)*
---
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