Jorg is building an office building for Wilmington Company for $20,000,000. The contract has the following characteristics:•The office building is built to the customer’s specifications and the customer can make changes to these specifications over the contract term.•Progress payments are made by the customer throughout construction.•The customer can cancel the contract at any time (with a termination penalty); any work in process is the property of the customer. Jorg provides you with the following details: December 31201920202021Costs incurred to date$8,000,000$16,000,000$18,000,000Estimated costs to complete6,000,0003,000,000—Billings to date8,000,00016,000,00020,000,000Collections to date6,000,00012,000,00018,000,000 Required:1.Calculate the estimated total gross profit on the contract as of December 31, 2019, 2020, and 2021.2.Calculate the percentage of completion for 2019, 2020, and 2021.3.Calculate the amount of income (loss) Jorg will recognize for 2019, 2020, and 2021.4.Prepare all journal entries related to this project for Jorg for all 3 years.5.How will this project be carried on the balance sheet for 2019, 2020, and 2021?

The gross profit and revenue are recognised during the period on the basis of costs incurred during…

Answered: Jorg is building an office building for…

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 10P

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Question

Jorg is building an office building for Wilmington Company for $20,000,000. The contract has the following characteristics:

•	The office building is built to the customer’s specifications and the customer can make changes to these specifications over the contract term.
•	Progress payments are made by the customer throughout construction.
•	The customer can cancel the contract at any time (with a termination penalty); any work in process is the property of the customer.

Jorg provides you with the following details:

Required:

1.	Calculate the estimated total gross profit on the contract as of December 31, 2019, 2020, and 2021.
2.	Calculate the percentage of completion for 2019, 2020, and 2021.
3.	Calculate the amount of income (loss) Jorg will recognize for 2019, 2020, and 2021.
4.	Prepare all journal entries related to this project for Jorg for all 3 years.
5.	How will this project be carried on the balance sheet for 2019, 2020, and 2021?