Question

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.

Answer 1

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