Question

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,100,000. The project began in 2021 and was completed in 2022. Data relating to the contract are summarized below: 2021 2022Costs incurred during the year $ 308,000 $ 1,615,000 Estimated costs to complete as of 12/311, 232,000 0 Billings during the year 390,000 1,640,000 Cash collections during the year 270,000 1,760,000 Required:1. Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming Nortel recognizes revenue over time according to percentage of completion.2. Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming this project does not qualify for revenue recognition over time.3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming Nortel recognizes revenue over time according to percentage of completion.4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming this project does not qualify for revenue recognition over time.Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming Nortel recognizes revenue over time according to percentage of completion. (Loss amounts should be indicated with a minus sign. Use percentages as calculated and rounded in the table below to arrive at your final answer.)

Answer 1

Answer:

2021

revenues 420,000

gross profit 112,000

2022

revenues  1,680,000

gross profit   65,000

Explanation:

2021:

Cost incurred              308,000

Estimed to complete 1,232,000

Total cost                  1,540,000

Percentage of completion 308,000 / 1,540,000 = 20%

Revenue will be recongize for 20% of the total

2,100,000 x 20% = 420,000

Less Cost               (308,000)

Gross Profit              112,000

For 2022 we recognize the rest as the project is completed

2,100,000 - 420,000 = 1,680,000

Incurred Cost               (1,615,000)

Gross Profit                      65,000