On February 1, 2024, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,120,000. During 2024, costs of $2,040,000 were incurred with estimated costs of $4,040,000 yet to be incurred. Billings of $2,540,000 were sent, and cash collected was $2,290,000. In 2025, costs incurred were $2,540,000 with remaining costs estimated to be $3,660,000. 2025 billings were $2,790,000, and $2,515,000 cash was collected. The project was completed in 2026 after additional costs of $3,840,000 were incurred. The company's fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion. Required: 1. Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years. 2a. Prepare journal entries for 2024 to record the transactions described (credit "Cash, Materials, etc." for construction costs incurred). 2b. Prepare journal entries for 2025 to record the transactions described (credit "Cash, Materials, etc." for construction costs incurred). 3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2024. 3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2025.
On February 1, 2024, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,120,000. During 2024, costs of $2,040,000 were incurred with estimated costs of $4,040,000 yet to be incurred. Billings of $2,540,000 were sent, and cash collected was $2,290,000. In 2025, costs incurred were $2,540,000 with remaining costs estimated to be $3,660,000. 2025 billings were $2,790,000, and $2,515,000 cash was collected. The project was completed in 2026 after additional costs of $3,840,000 were incurred. The company's fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion. Required: 1. Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years. 2a. Prepare journal entries for 2024 to record the transactions described (credit "Cash, Materials, etc." for construction costs incurred). 2b. Prepare journal entries for 2025 to record the transactions described (credit "Cash, Materials, etc." for construction costs incurred). 3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2024. 3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2025.
Chapter3: Income Sources
Section: Chapter Questions
Problem 88P
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Transcribed Image Text:On February 1, 2024, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of
$8,120,000. During 2024, costs of $2,040,000 were incurred with estimated costs of $4,040,000 yet to be incurred. Billings of
$2,540,000 were sent, and cash collected was $2,290,000.
In 2025, costs incurred were $2,540,000 with remaining costs estimated to be $3,660,000. 2025 billings were $2,790,000, and
$2,515,000 cash was collected. The project was completed in 2026 after additional costs of $3,840,000 were incurred. The
company's fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion.
Required:
1. Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years.
2a. Prepare journal entries for 2024 to record the transactions described (credit "Cash, Materials, etc." for construction costs incurred).
2b. Prepare journal entries for 2025 to record the transactions described (credit "Cash, Materials, etc." for construction costs incurred).
3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2024.
3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2025.
Complete this question by entering your answers in the tabs below.
Req 1
Req 2A
2024
2025
2026
Construction revenue
Construction expense
Gross profit (loss)
Construction revenue
Construction expense
Gross profit (loss)
Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years.
Note: Do not round intermediate calculations. Loss amounts should be indicated with a minus sign. Round your final answers to the nearest
whole dollar.
Construction revenue
Construction expense
Gross profit (loss)
$
$
$
$
$
Req 2B
$
$
To date
Req 3A
2,040,000✔
4,580,000
8,420,000✔
X Answer is not complete.
To date
To date
Percentages of completion
|÷
2,724,4740 $
2,040,000 $
684,474
$
Req 3B
2024
4,513,301 $
4,580,000 $
(66,699) X $
2025
$
$
$
$
Recognized in prior years
2026
6,080,000✔ =
8,240,000✔
8,420,000✔
Recognized in prior years
$
0 $
$
$
2,724,474
2,040,000 $
684,474 $
Recognized in prior years
4,513,301
$
$
$
33.5526%
55.5825%
100.0000%
Recognized in 2024
2,724,474
2,040,000
684,474
Recognized in 2025
1,788,827
2,540,000
(751,173)
Recognized in 2026
(4,513,301)
0
0
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