Case 18-3 rev. Nailed It! Construction Nailed It! Construction (Nailed It! or the Company"), an SEC registrant, is a construction company that manufactures commercial and residential buildings. On March 1, 20X1, the Company entered into an agreement with a customer, Village Apartments, to construct a residential apartment building for a fixed price of $1.5 million. The Company estimates that it will incur costs of $1 million to complete construction of the apartment building. The apartment building will only transfer to Village Apartments once the construction of the entire building is complete. In addition, Village Apartments has various design requirements that would require Nailed It! to incur significant costs to rework the building prior to selling it to a customer other than Village Apartments. To construct the apartment building, Nailed It! acquires standard materials that it regularly uses in construction contracts for both residential and commercial buildings. These materials are used to manufacture generic component parts for inclusion in Village Apartments' residential buildings. These standard materials Temain interchangeable with other items until they are deployed in a Village Apartments building. The Company has made the following purchases and incurred the following costs throughout the construction progress: As of June 30, 20X1, in total, Nailed It! has purchased $75,000 of component parts. As of June 30, 20X1, $25,000 of component parts remain in inventory and $50,000 have been integrated into the project. Further, Nailed It! has incurred $12,500 of direct costs to integrate the component parts into the Village. . As of June 30, 20X1, in total, Nailed It! has purchased $75,000 of component parts. As of June 30, 20X1, $25,000 of component parts remain in inventory and $50,000 have been integrated into the project. Further, Nailed It! has incurred $12,500 of direct costs to integrate the component parts into the Village. . Apartments construction project during the three months ended June 30, 20X1. During the three months ended September 30, 20X1, Nailed It! purchased an additional $500,000 of component parts ($575,000 in total). Of the $575,000 of component parts, $325,000 remain in inventory and $200,000 have been integrated into the project during the three months ended September 30, 20X1. During the three months ended September 30, 20X1, Nailed It! incurred an additional $50,000 of direct costs to integrate the component parts into the Village Apartments construction project. As of September 30, 20X1, Nailed It! determined that the project was over budget and revised its cost estimate from $1 million to $1.25 million. As of December 31 20X1, the construction project was completed. During the three months ended December 31, 20x1, Nailed It! purchased an additional $425,000 of generic component parts ($1 million in total). Of the $1 million component parts, $0 remain in inventory and $750,000 were integrated into the project during the three months ended December 31, 20X1. Nailed It! has incurred $187,500 of direct costs to integrate the component parts into the Village Apartments construction project during the three months ended December 31, 20X1. Nailed It! Recognizes revenue over time and has the right to payment for work completed to- date. If Village Apartments cancels the contract, Nailed It! will be entitled to reimbursement for costs incurred for work completed to date plus a margin of 20 percent, which is considered to be a reasonable margin. Nailed It! will not be reimbursed for any materials 00 20 Forma B5 fx B D E F H 1 BRIEFLY EXPLAIN WHY NAILED IT CAN RECOGNIZED REVENU OVER TIME 4 5 ASC paragraphs 6 7 8 9 2A DOES NAILED IT APPLY INPUT OR OUTPUT METHOD TO MEASURE PROGRESS? B BRIEFLY, EXPLAIN ASC paragraph 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 EXPLAIN HOW NAILE IT ACCOUNTS FOR THE REVISION OF COST TO COMPLETE, AT 9/30/X1 EXPLANATION, NOT CALCULATIONS ASC paragraph 4 29 HERE IS A SCHEDULE OF THE DATA PROVIDED IN THE CASE: PARTS AND DIRECT COSTS USED IN PURCHASES PROJECT CUMULATIVE DURING CUMULATIVE DURING MATERIALS AS OF QUARTER PURCHASES QUARTER Idlec 6/30/1 75,000 75,000 50,000 50,000 9/30/X1 500,000 575,000 200,000 250,000 12/31/1 425,000 1,000,000 750,000 1,000,000 Given amounts DIRECT COSTS INCURRED DURING QUARTU REMAINING IN INVENTORY CUMULATIVE DIRECT COSTS INCURRED 30 31 32 25.000 325,000 0 12.500 50.000 187,500 12,500 62,500 250.000 34 35 10. NAILED IT ma Cell Formatting as Table Styles 5 x fe B K M N 0 AS OF: 6/30/X1 9/30/X1 12/31/X1 D E DOG CONVICTIVE DOTTO QUARTER PURCHASES QUARTER lal bela 75,000 75,000 50.000 500,000 575,000 200,000 425,000 1,000,000 750,000 Give amounts TORTOR USED Idle! 50,000 250,000 1,000,000 INVENTORY lel 25,000 325,000 0 UNELTE QUARTER INCURRER Il- 12,500 12,500 50,000 62,500 187 500 250,000 3 IN THE CELLS BELOW, PROVIDE THE CALCULATIONS FOR THE REVENUE TO BE RECOGNIZED IN EACH OF THE THREE 3-MONTA PERIODS GOOD FORM COUNTS 8 REVENUE RECOGNIZED 0 1 FIXED PRICE OF CONTRACT: $1,500,000 QUARTERLY REVENUE RECOGNIZED HEADINGS HERE, YOU MAY WISH TO WIDEN THEM. TEXT WILL WRAP AS OF: 13 15 6/30/X1 9/30/X1 12/31/1 SOLUTION IN 145 TO 18 48 49 50 YOU MAY NOT NEED ALL ALL COLUMNS BUT, YOU WILL NOT NEED MORE THAN THE PROVIDED COLUMNS 52 53 54 55 56 60 18-3 NAILED IT +