Citation Builders, Inc., 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 1020 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 2021, Citation began construction of an office building for Altamont Corporation. The total contract price is $30 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows:

Also during 2021, Citation began a development consisting of 12 identical homes. Citation estimated that each home will sell for $1,000,000, but individual sales prices are negotiated with buyers. Deposits were received for eight of the homes, three of which were completed during 2021 and paid for in full for $1,000,000 each by the buyers. The completed homes cost $750,000 each to construct. The construction costs incurred during 2021 for the nine uncompleted homes totaled $4,500,000.

ANSWERS TO 1, 2A, 2B

2-c. What will Citation report in its December 31, 2021, balance sheet related to this contract? (Ignore cash.)

3-a. How much revenue related to this contract will Citation report in its 2021 and 2022 income statements? 3-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2021 and 2022?

3-c. What will Citation report in its December 31, 2021, balance sheet related to this contract? (Ignore cash.)

4-a. How much revenue related to this contract will Citation report in the 2022 income statement? 4-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2022?

4-c. What will Citation report in its 2022 balance sheet related to this contract? (Ignore cash.)

2023 $ 6,750,000 Costs incurred during the year Estimated costs to complete as of year-end Billings during the year Cash collections during the year 2021 $ 6,000,000 18,000,000 3,000,000 2,700,000 2022 $14,250,000 6,750,000 15,000,000 13,700,000 12,000,000 13,600,000 1. Recognizing revenue at the point of delivery? Recognize revenue upon completion 2021 2022 $ 0 $ 0 $ 2a. Revenue recognized 2b. Gross profit or loss to be recognized Balance Sheet (Partial) At December 31, 2021 Current assets: Accounts receivable Costs in excess of billings Current liabilities: 2021 2022 Revenue reported Gross profit or loss to be recognized Balance Sheet (Partial) At December 31, 2021 Current assets: Accounts receivable Costs and profit in excess of billings Current liabilities: 2022 Revenue reported Gross profit or loss to be recognized