Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructedunder contract with reputable buyers. The homes are constructed in developments ranging from 10–20 homesand are typically sold during construction or soon after. To secure the home upon completion, buyers must paya deposit of 10% of the price of the home with the remaining balance due upon completion of the house andtransfer of title. Failure to pay the full amount results in forfeiture of the down payment. Occasionally, homesremain unsold for as long as three months after construction. In these situations, sales price reductions are usedto promote the sale.During 2018, Citation began construction of an office building for Altamont Corporation. The total contractprice is $20 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for thelife of the contract are as follows:2018 2019 2020Costs incurred during the year $ 4,000,000 $ 9,500,000 $4,500,000Estimated costs to complete as of year-end 12,000,000 4,500,000 —Billings during the year 2,000,000 10,000,000 8,000,000Cash collections during the year 1,800,000 8,600,000 9,600,000Also during 2018, Citation began a development consisting of 12 identical homes. Citation estimated that eachhome will sell for $600,000, but individual sales prices are negotiated with buyers. Deposits were received foreight of the homes, three of which were completed during 2018 and paid for in full for $600,000 each by thebuyers. The completed homes cost $450,000 each to construct. The construction costs incurred during 2018 forthe nine uncompleted homes totaled $2,700,000.Required:1. Briefly explain the difference between recognizing revenue over time and upon project completion whenaccounting for long-term construction contracts.
Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructed
under contract with reputable buyers. The homes are constructed in developments ranging from 10–20 homes
and are typically sold during construction or soon after. To secure the home upon completion, buyers must pay
a deposit of 10% of the price of the home with the remaining balance due upon completion of the house and
transfer of title. Failure to pay the full amount results in forfeiture of the down payment. Occasionally, homes
remain unsold for as long as three months after construction. In these situations, sales price reductions are used
to promote the sale.
During 2018, Citation began construction of an office building for Altamont Corporation. The total contract
price is $20 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for the
life of the contract are as follows:
2018 2019 2020
Costs incurred during the year $ 4,000,000 $ 9,500,000 $4,500,000
Estimated costs to complete as of year-end 12,000,000 4,500,000 —
Billings during the year 2,000,000 10,000,000 8,000,000
Cash collections during the year 1,800,000 8,600,000 9,600,000
Also during 2018, Citation began a development consisting of 12 identical homes. Citation estimated that each
home will sell for $600,000, but individual sales prices are negotiated with buyers. Deposits were received for
eight of the homes, three of which were completed during 2018 and paid for in full for $600,000 each by the
buyers. The completed homes cost $450,000 each to construct. The construction costs incurred during 2018 for
the nine uncompleted homes totaled $2,700,000.
Required:
1. Briefly explain the difference between recognizing revenue over time and upon project completion when
accounting for long-term construction contracts.
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