Chapter 6–Long-Term Construction Contracts Allbright Builders, Inc. is constructing a new business building for the local university. The contract price is $6,000,000 and estimated costs are $5,100,000. The project is expected to take three years. Allbright is able to reasonable estimate costs throughout the contract. Presented below is a summary of costs, billings, and collections for the three years. Year 1 $1,700,000 Year2 $1,600,000 Year3 Actual Costs per Year $2,000,000 Estimated Costs to $3,400,000 $1,900,000 so Complete Billings Collections $2,100,000 $1,900,000 $2,200,000 $2,000,000 $1,700,000 $2,100,000 a. Prepare the journal entries to record costs, billings and collections for Years 1, 2, and 3. b. Compute the gross profit for each year and record the journal entry to reflect revenues, expenses and gross profit. c. Prepare the balance sheet disclosures for Years 1 and 2. d. Assume that it is not possible to make reasonable estimates of progress during the contract. How would the journal entries for revenue and expense differ? How would the balance sheet disclosures differ?

Chapter 6–Long-Term Construction Contracts Allbright Builders, Inc. is constructing a new business building for the local university. The contract price is $6,000,000 and estimated costs are $5,100,000. The project is expected to take three years. Allbright is able to reasonable estimate costs throughout the contract. Presented below is a summary of costs, billings, and collections for the three years. Year 1 $1,700,000 Year2 $1,600,000 Year3 Actual Costs per Year $2,000,000 Estimated Costs to $3,400,000 $1,900,000 so Complete Billings Collections $2,100,000 $1,900,000 $2,200,000 $2,000,000 $1,700,000 $2,100,000 a. Prepare the journal entries to record costs, billings and collections for Years 1, 2, and 3. b. Compute the gross profit for each year and record the journal entry to reflect revenues, expenses and gross profit. c. Prepare the balance sheet disclosures for Years 1 and 2. d. Assume that it is not possible to make reasonable estimates of progress during the contract. How would the journal entries for revenue and expense differ? How would the balance sheet disclosures differ?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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6 points American Construction Company has entered into a contract with American University in Cairo beginning January 1, 2017 to construct Digital Library Building. It has been estimated that the costs of the building to be $2,100,000 and the contract price will be $3,265,000. It will take 3 years to construct the building. The company uses cost recovery method. If the following data pertain to the building during the construction period. Save Answer 2017 $945,000 1,155,000 900,000 800,000 2018 $1,575,000 525,000 1,970,000 1,750,000 2019 $2,135,000 Costs to date Estimated costs to complete -0- Progress billings to date Cash collected to date 3,265,000 3,265,000 Requirements: Required 1: Compute the gross profit of loss recognized each year. Required 2: The balance of construction in process in 2017 and 2018 will be: Required 3: Assume the same data for the digital library contract except that the estimated cost in 2018 was $1.050.000 instead of $525,000. A. Compute the gross profit or…
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Current plan There are two fire brigades that each comprise five firefighters: three trainees and two experienced firefighters. The operating costs of each brigade, excluding staff salaries, average $130,000 per year. The equipment at each station initially cost $220,000 and has a current salvage value of $50,000. All equipment is depreciated on a straight-line basis based on an expected useful life of 10 years. Proposed plan Establish four fire brigades that each comprise three firefighters: two trainees and one experienced firefighter. The operating costs of each brigade, excluding staff salaries, is estimated to average $100,000 per year. Two more stations will need to be built, which would each cost $125,000. All existing equipment will be sold and replaced by upgraded equipment that would cost $250,000 per brigade. The average salary of trainee firefighters is $43,000 per year, while experienced firefighters earn $58,000 per year. A rate of return of 10% is required for…
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Time Value of Money Knowles College recently constructed a new academic building and is deciding whether it should lease or purchase the media equipment for its classrooms. If the College chooses to lease the equipment, it will be required to make annual payments of $50,000. The lease requires that payments be made at the beginning of each year for the duration of the lease, which is 7 years. If the College purchases the equipment, it will cost $315,000. In addition to the upfront cost, the equipment will require $19,000 in maintenance at the end of years 2, 4, and 6. The useful life of the equipment is estimated to be 7 years, at which point the College estimates it will be able to sell the equipment for $62,000. The College uses a discount rate of 4.25%. Fill in the following blanks: [Note: Write only POSITIVE numbers e.g. even if Excel gives you -253 or (253), write 253. Also, round your numbers to TWO decimal places e.g. 253.12] A) Present value of the lease option is: $ B) Present…
Instructions (X) Jonas Company purchased a photocopier that cost $15,000. The copier was expected to last for 1.25 million copies. In the first year of service the copier produced 180,000 copies, in the second year 250,000 copies and in the third year it had produced 175,000 copies. The company decided to sell the machine for $6,500 in the third year. Required: 1. Record the purchase and the three years of depreciation. 2. Record the subsequent gain or loss on the disposal of the machine.
QUESTION 12 A landscaping company buys a new bulldozer for $61,000.00. The company makes a down payment of $15,000.00 and finances the balance at 6.0% APR over 60 months. The monthly payment is $889.33. A split second after making the 12th payment, the company owner decides to pay the remaining balance on the loan. What is the total amount due to pay off the balance? Use the actuarial method. If you use the Finance Charge Table 11.2, page 632, and the "unearned interest formula", page 635, in your textbook to solve this problem, the result will match exactly with one of the answers. If you use a spreadsheet to do the computation, your result will not match exactly with any of the answers, but it will differ only very little (mostly less than $1) from the "correct" answer. O $31,418.37 O $33,772.15 O $37,867.33 O $44,784.81
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Question 3 You are starting a new project.This project would last 4years. The following is the input information that you have collected: Buildinf cost(1.3% in the first year and 2.6% every year)....................................$12,000,000 Equipment cost (MACRS 5 years)........................................................................$8,000,000 Net operating working capital requirement(% of sales)...........................................10% First year sales(in units)............................................................................................20,000 Growth rate in units sold.............................................................................................0% Sales price per unit......................................................................................................$3,000 Variable cost per unit.....................................................................................................$2,100 Fixed…
2- The manager of engineering at the 900- megawatt Hamilton Nuclear Power Plant has three options to supply personal safety equipment to employees. Two are vendors who sell the items, and a third will rent the equipment for $50,000 per year, but for no more than 3 years per contract. These items have relatively short lives due to constant use. The MARR is 10% per year. Initial cost, $ Annual upkeep cost, $/year Annual rental cost, $ per year Salvage value, $ Estimated life, years Vendor R -75,000 -27,000 0 0 2 Vendor T -125,000 -12,000 0 30,000 3 Rental 0 0 -50,000 0 Maximum of 3 Select from the two sales vendors using the LCM and PW analysis. a) b) Determine which of the three options is cheaper over a study period of 3 years.