Community Apartments Inc. (CA Inc.) is building a luxury condominium for a contract price of $68,000,000. This is estimated to be a three-year project with an estimated cost of $54,000,000. CA Inc. uses the percentage-of-completion method of revenue recognition, using the cost-to-cost method of estimating the percentage complete. The following is the best available information at the end of each year: Year 1 Year 2 Year 3 Costs incurred each year 9,000 31,500 20,000 Estimated costs to complete 51,000 27,000 0 Billings 8,000 34,500 25,500 Collections 7,000 28,500 32,500 Required: a. Compute the amount of gross profit to be recognized in Year 1, Year 2, and Year 3. Show computations in tabular form provided below: Year 1 Year 2 Year3 Cost incurred to date Estimated cost to complete Estimated total cost Contract price Estimated gross profit % complete Gross profit to date Gross profit previously recognized Current gross profit b. Determine the performance that would be reported under the cash basis and accrual basis of accounting for Year 1 of this company. Explain how revenues are matched with expenses when the percentage of completion basis is used. c. Complete the PARTIAL Balance Sheet for Year 1 Current assets Accounts Receivable Inventories Current Liabilities Unearned revenue
Community Apartments Inc. (CA Inc.) is building a luxury condominium for a contract price of $68,000,000. This is estimated to be a three-year project with an estimated cost of $54,000,000. CA Inc. uses the percentage-of-completion method of revenue recognition, using the cost-to-cost method of estimating the percentage complete. The following is the best available information at the end of each year:
|
|
Year 1 |
Year 2 |
Year 3 |
|
Costs incurred each year |
9,000 |
31,500 |
20,000 |
|
Estimated costs to complete |
51,000 |
27,000 |
0 |
|
Billings |
8,000 |
34,500 |
25,500 |
|
Collections |
7,000 |
28,500 |
32,500 |
Required:
a. Compute the amount of gross profit to be recognized in Year 1, Year 2, and Year 3. Show computations in tabular form provided below:
|
|
Year 1 |
Year 2 |
Year3 |
|
Cost incurred to date |
|
|
|
|
Estimated cost to complete |
|
|
|
|
Estimated total cost |
|
|
|
|
Contract price |
|
|
|
|
Estimated gross profit |
|
|
|
|
% complete |
|
|
|
|
Gross profit to date |
|
|
|
|
Gross profit previously recognized |
|
|
|
|
Current gross profit |
|
|
|
b. Determine the performance that would be reported under the cash basis and accrual basis of accounting for Year 1 of this company. Explain how revenues are matched with expenses when the percentage of completion basis is used.
c. Complete the PARTIAL Balance Sheet for Year 1
Current assets
|
|
|
|
|
Inventories |
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
Unearned revenue |
|
|
|
|
|
|
|
|
|
|
Step by step
Solved in 3 steps
