A company that specializes in long-term construction contracts enters into a $6,000,000 contract
that will take four years to complete. The following information is available:
Year 1
Year 2
Year 3
Year 4
Cumulative contract costs
$ 825,000 $2,280,000 $4,270,000 $6,150,000
Estimated costs to complete $4,675,000 $3,420,000 $1,830,000 $0
Annual Billings
$1,000,000 $2,000,000 $1,500,000 $1,500,000
Upload a file to answer this question. Show and label your work in order to receive partial credit.
Put losses in (brackets). Round to the nearest whole percent (e.g., 13%). Be sure your answers to
the following questions are clearly labeled. Do not expect me to intuit your answers from the
work shown.
Assume the company recognizes revenue over time based on the percentage of completion.
A. How much will be shown as Revenue from Long-Term Contract in the Year 1 financial
statements?
B. How much Gross Profit (Loss) will be recognized in Year 1?
C. How will this contract be shown on the balance sheet at the end of Year 1? Give financial
statement classification, presentation, and amount.
D. Prepare the journal entry to recognize revenue and gross profit for Year 2.
E. How much Gross Profit (Loss) will be recognized in the Year 3 income statement?
Now assume the company recognizes revenue upon completion of the contract.
F. How much gross profit (loss) will be shown in the income statement for Year 3 (if none,
so state)?
G. How much gross profit (loss) will be shown in the income statement for Year 4 (if none,
so state)?
