Citation Builders, Incorporated, 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.
Citation Builders, Incorporated, 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.
Chapter3: Income Sources
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![Citation Builders, Incorporated, 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 2024, Citation began construction of an office building for Altamont Corporation. The total contract price is $10 million. Costs
incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows:
Costs incurred during the year
Estimated costs to complete as of year-end
Billings during the year
Cash collections during the year
2024
$ 2,000,000
6,000,000
1,000,000
900,000
2025
$4,750,000
2,250,000
5,000,000
3,500,000
2026
$ 2,250,000
Required:
1. Which method is most equivalent to recognizing revenue at the point of delivery?
4,000,000
5,600,000
Also during 2024, Citation began a development consisting of 12 identical homes. Citation estimated that each home will sell for
$620,000, but individual sales prices are negotiated with buyers. Deposits were received for eight of the homes, three of which were
completed during 2024 and paid for in full for $620,000 each by the buyers. The completed homes cost $465,000 each to construct.
The construction costs incurred during 2024 for the nine uncompleted homes totaled $2,790,000.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe0561e99-dcfc-4931-aed9-dcdbd02881b2%2Fcd2c8b77-a63b-4fa5-8127-8dce6b50b173%2Fk3z1pnc_processed.png&w=3840&q=75)
Transcribed Image Text:Citation Builders, Incorporated, 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 2024, Citation began construction of an office building for Altamont Corporation. The total contract price is $10 million. Costs
incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows:
Costs incurred during the year
Estimated costs to complete as of year-end
Billings during the year
Cash collections during the year
2024
$ 2,000,000
6,000,000
1,000,000
900,000
2025
$4,750,000
2,250,000
5,000,000
3,500,000
2026
$ 2,250,000
Required:
1. Which method is most equivalent to recognizing revenue at the point of delivery?
4,000,000
5,600,000
Also during 2024, Citation began a development consisting of 12 identical homes. Citation estimated that each home will sell for
$620,000, but individual sales prices are negotiated with buyers. Deposits were received for eight of the homes, three of which were
completed during 2024 and paid for in full for $620,000 each by the buyers. The completed homes cost $465,000 each to construct.
The construction costs incurred during 2024 for the nine uncompleted homes totaled $2,790,000.
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