On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,390,000. During 2021, costs of $2,130,000 were incurred with estimated costs of $4,130,000 yet to be incurred. Billings of $2,630,000 were sent, and cash collected was $2,380,000. In 2022, costs incurred were $2,630,000 with remaining costs estimated to be $3,795,000. 2022 billings were $2,880,000 and $2,605,000 cash was collected. The project was completed in 2023 after additional costs of $3,930,000 were incurred. The company's fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion. Required: 1. Compute the amount of revenue and gross profit or loss to be recognized in 2021, 2022, and 2023 using the percentage of completion method. 2a. Prepare journal entries for 2021 to record the transactions described (credit "various accounts" for construction costs incurred). 2b. Prepare journal entries for 2022 to record the transactions described (credit "various accounts" for construction costs incurred). 3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2021. 3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2022. Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Req 3A Req 3B
On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,390,000. During 2021, costs of $2,130,000 were incurred with estimated costs of $4,130,000 yet to be incurred. Billings of $2,630,000 were sent, and cash collected was $2,380,000. In 2022, costs incurred were $2,630,000 with remaining costs estimated to be $3,795,000. 2022 billings were $2,880,000 and $2,605,000 cash was collected. The project was completed in 2023 after additional costs of $3,930,000 were incurred. The company's fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion. Required: 1. Compute the amount of revenue and gross profit or loss to be recognized in 2021, 2022, and 2023 using the percentage of completion method. 2a. Prepare journal entries for 2021 to record the transactions described (credit "various accounts" for construction costs incurred). 2b. Prepare journal entries for 2022 to record the transactions described (credit "various accounts" for construction costs incurred). 3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2021. 3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2022. Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Req 3A Req 3B
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:**Arrow Construction Company Case Study**
**Scenario:**
On February 1, 2021, Arrow Construction Company began a three-year contract to construct a bridge for $8,390,000.
**2021 Financial Details:**
- Costs incurred: $2,130,000
- Estimated costs remaining: $4,130,000
- Billings: $2,630,000
- Cash collected: $2,380,000
**2022 Financial Details:**
- Costs incurred: $2,630,000
- Estimated remaining costs: $3,795,000
- Billings: $2,880,000
- Cash collected: $2,605,000
**2023 Completion:**
- Additional costs: $3,930,000
- Fiscal year-end: December 31
Arrow applies the percentage of completion method for revenue recognition.
**Tasks:**
1. **Revenue and Gross Profit/Loss Computation:**
- Calculate for years 2021, 2022, and 2023.
2. **Journal Entries:**
- **2021 (2a):** Record transactions for construction costs.
- **2022 (2b):** Record transactions for construction costs.
3. **Partial Balance Sheet Preparation:**
- **2021 (3a):** Financial presentation as of December 31, 2021.
- **2022 (3b):** Financial presentation as of December 31, 2022.
**Instructions:**
Enter answers in the tabs provided (Req 1, Req 2A, Req 2B, Req 3A, Req 3B). For journal entries, credit “various accounts” for costs. If no entry is needed, select "No journal entry required." Round all answers to the nearest dollar.
**Navigation:**
- Use the "Prev" and "Next" buttons to navigate between tabs.
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