Exercise 5-17 Long-term contract; revenue recognition over time and at a point in time [LO5-9]

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,050,000. The project began in 2018 and was completed in 2019. Data relating to the contract are summarized below:

	2018			2019
Costs incurred during the year	$	304,000		$	1,595,000
Estimated costs to complete as of 12/31		1,216,000			0
Billings during the year		385,000			1,630,000
Cash collections during the year		252,000			1,755,000

Required: 1. Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming Nortel recognizes revenue over time according to percentage of completion. 2. Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming this project does not qualify for revenue recognition over time. 3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming Nortel recognizes revenue over time according to percentage of completion. 4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming this project does not qualify for revenue recognition over time.

Required 1Required 2Required 3 Required 4 Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming revenue over time according to percentage of completion. (Loss amounts should be indicated with a percentages as calculated and rounded in the table below to arrive at your final answer.) Choose numerator Actual costs to date Percentages of completion | Choose denominator | = Estimated total costs | | % complete to date 304,000$ 1,899,000 $ 1520.0001 = ,89000 2018 2019 100.00% 2018 To date Recognized in prior years Recognized in 2018 Construction revenue Construction expense Gross profit (loss) 2019 To date Recognized in prior years Recognized in 2019 Construction revenue Construction expense Gross profit (loss)