Exercise 5-20 Long-term contract; revenue recognition upon project completion; loss projected on entire project [LO5-8, 5-9]

On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,475,000. During 2018, costs of $2,190,000 were incurred, with estimated costs of $4,190,000 yet to be incurred. Billings of $2,728,000 were sent, and cash collected was $2,440,000. In 2019, costs incurred were $2,728,000 with remaining costs estimated to be $3,885,000. 2019 billings were $2,978,000, and $2,665,000 cash was collected. The project was completed in 2020 after additional costs of $3,990,000 were incurred. The companys fiscal year-end is December 31. This project does not qualify for revenue recognition over time. 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 2018 to record the transactions described (credit "various accounts" for construction costs incurred). 2b. Prepare journal entries for 2019 to record the transactions described (credit "various accounts" for construction costs incurred). 3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2018. 3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2019.

Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years. (Loss amounts should be indicated with a minus sign.)

Year	Revenue recognized	Gross profit (loss) recognized
2018
2019
2020
Total	$0	$0

Prepare journal entries for 2018 to record the transactions described (credit "various accounts" for construction costs incurred). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record the construction costs

• Record the progress billings.
• Record the cash collections.
• Record the expected loss.

Prepare journal entries for 2019 to record the transactions described (credit "various accounts" for construction costs incurred). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record the construction costs

• Record the progress billings.
• Record the cash collections.
• Record the expected loss.

Prepare a partial balance sheet to show the presentation of the project as of December 31, 2018. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

Balance Sheet

At December 31, 2018

Current assets:

Current liabilities:

Prepare a partial balance sheet to show the presentation of the project as of December 31, 2019. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

Balance Sheet
At December 31, 2019
Current assets:
Current liabilities: