E6.37 (LO 12) (Recognition of Profit on Long-Term Contract) Vaughn Enterprises Ltd. has entered into a contract beginning in February 2020 to build two warehouses for Atlantis Structures Ltd. The contract is a non-cancellable fixed price contract for $10 million. The following data pertain to the construction period (all figures in thousands).

	2020	2021	2022
Costs for the year	$3,825	$4,675	$1,200
Estimated costs to complete	4,675	1,270	0
Progress billings for the year (non-refundable)	3,500	4,100	2,400
Cash collected for the year	3,100	4,150	2,750

E6.39 (LO 15 ) (Recognition of Profit on Long-Term ContractOverall Loss) Assume the facts given in E6.37 except that Vaughn's non-cancellable fixed-price contract with Atlantis is for $9.5 million. Billings and collections are lower in 2022 by $500,000 each.

	2020	2021	2022
Costs for the year	$3,825	$4,675	$1,200
Estimated costs to complete	4,675	1,270	0
Progress billings for the year (non-refundable)	3,500	4,100	1,900
Cash collected for the year	3,100	4,150	2,250

Instructions

a. Using the percentage-of-completion method, calculate the percent complete for 2020 and 2021. Round the percent complete to the nearest whole percentage point.

b. Calculate the amount of revenue to be recognized in 2020 and 2021.

c. Calculate the construction costs to be expensed in 2021.

d. Prepare the journal entry at December 31, 2021, to record long-term contract revenues, expenses, and losses for 2021.

e. What is the balance in the Contract Asset/Liability account at December 31, 2020 and 2021?

f. Show how the construction contract would be reported on the SFP and the income statement for the year ended December 31, 2021.

g. Assume that Vaughn uses the zero-profit or completed-contract method. What would be the journal entry recorded on December 31, 2021?