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Prepare the t-accounts for construction in progress, billings on construction in progress, and accounts receivable. Determine the net asset (liability) for each year of the contract on December 31.

Prepare the t-accounts for construction in progress, billings on construction in progress, and accounts receivable. Determine the net asset (liability) for each year of the contract on December 31.

FINANCIAL ACCOUNTING
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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Nance Network Consultants, Incorporated uses the percentage-of-completion method to account for its long-term contracts. It uses the cost-to-cost approach to measure progress. During the current year, Nance signed a contract to develop a computer network for an international accounting firm. Information related to the contract follows.

  1. Prepare the t-accounts for construction in progress, billings on construction in progress, and accounts receivable.
  2. Determine the net asset (liability) for each year of the contract on December 31.
Contract price Actual construction costs incurred during the year Construction costs incurred in prior years Cumulative construction costs incurred to date Estimated costs to complete Estimated total costs Progress billings made during the year Cash collections during the year $800,000 2022 $ 200,000 0 200,000 400,000 600,000 300,000 220,000 2023 2024 $300,000 $150,000 200,000 500,000 500,000 650,000 300,000 0 800,000 650,000 400,000 100,000 380,000 200,000
Transcribed Image Text:Contract price Actual construction costs incurred during the year Construction costs incurred in prior years Cumulative construction costs incurred to date Estimated costs to complete Estimated total costs Progress billings made during the year Cash collections during the year $800,000 2022 $ 200,000 0 200,000 400,000 600,000 300,000 220,000 2023 2024 $300,000 $150,000 200,000 500,000 500,000 650,000 300,000 0 800,000 650,000 400,000 100,000 380,000 200,000
We solve this question step by step Step-1 year Total 2022 2023 2024 Note No: 2 The % completion-contract method A cost incurred during the year 200,000 300,000 150,000 650,000 Note.01 Cost of complete to date-PY B+A 200,000 500,000 650,000 column A column B= column C columnD column= column F column G = US-GAAP Contract duration is 3 years Total estimated contract revenue is Total estimated contract costis D=B+C Estimated cost to Estimated Complete E=ED F=reveunexEG compliti revenue Total cost on during year Revenue 400,000 600,000 300,000 800,000 63% 650,000 100% 33% $800.000 $550.000 266,667 266,667 233,333 500,000 300,000 800,000 800,000 hformation given Question Cument year cost incurred during the year + last year cost of complete to date Information given Question Cost of complete to date + Estimated cost to complete D=E+C (Cost of Complete to date d Estimated total cost ) x 100 E=(BC) x 100 Total revenue x% Cument year Revenue during the year + last year Revenue of complete to date H-F-A Financial Statement Statement of Income extract - 31 December 2022 Fevenue COS(B) Gross proft (2) Mement of Income extract 31 December 2023 Gross profit 266,666.67 200.000.00 66.666.67 Fevenue COS (8) 66,667 Gross prof (2) (66,667) stement of Income extract - 31 December 2024 150,000 150,000 Net Profit: F a prolkis expected under the contract, revenue and costs (and hence profik) are to be recognized in the Net Loss: Fanetloss is expected under the contract, the entire lossis ropognized immediately in the income statement. Revenue and contract costs are recognized in the income statement on the basis of Stage of Completion of the contract Revenue COS (9) Gross profit (2) 233,303.33 -06.086.67 300,000.00 150.000.00 150.000.00 Column H- Revenue during year-Cost incurred during the
Transcribed Image Text:We solve this question step by step Step-1 year Total 2022 2023 2024 Note No: 2 The % completion-contract method A cost incurred during the year 200,000 300,000 150,000 650,000 Note.01 Cost of complete to date-PY B+A 200,000 500,000 650,000 column A column B= column C columnD column= column F column G = US-GAAP Contract duration is 3 years Total estimated contract revenue is Total estimated contract costis D=B+C Estimated cost to Estimated Complete E=ED F=reveunexEG compliti revenue Total cost on during year Revenue 400,000 600,000 300,000 800,000 63% 650,000 100% 33% $800.000 $550.000 266,667 266,667 233,333 500,000 300,000 800,000 800,000 hformation given Question Cument year cost incurred during the year + last year cost of complete to date Information given Question Cost of complete to date + Estimated cost to complete D=E+C (Cost of Complete to date d Estimated total cost ) x 100 E=(BC) x 100 Total revenue x% Cument year Revenue during the year + last year Revenue of complete to date H-F-A Financial Statement Statement of Income extract - 31 December 2022 Fevenue COS(B) Gross proft (2) Mement of Income extract 31 December 2023 Gross profit 266,666.67 200.000.00 66.666.67 Fevenue COS (8) 66,667 Gross prof (2) (66,667) stement of Income extract - 31 December 2024 150,000 150,000 Net Profit: F a prolkis expected under the contract, revenue and costs (and hence profik) are to be recognized in the Net Loss: Fanetloss is expected under the contract, the entire lossis ropognized immediately in the income statement. Revenue and contract costs are recognized in the income statement on the basis of Stage of Completion of the contract Revenue COS (9) Gross profit (2) 233,303.33 -06.086.67 300,000.00 150.000.00 150.000.00 Column H- Revenue during year-Cost incurred during the
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