Nailed It! Construction (Nailed I

t! or the "Company"), an SEC r

egistrant, is a

construction company that manufact

ures commercial and residenti

al buildings. On March

1, 20X1, the Company entered into a

n agreement with a customer,

Village Apartments, to

construct a residen

tial apartment buildi

ng for a fixed price of

$1.5 million. The Company

estimates that it will incur costs of $1 million to complete co

nstruction of the apartment

building. The apartment building will only transfer to Village

Apartments once the

construction of the entire bu

ilding is complete. In addition, V

illage Apartments has

various design requirements that w

ould require Nailed It! to in

cur significant costs to

rework the building prior to sel

ling it to a custo

mer other tha

n Village Apartments.

To construct the apartment build

ing, Nailed It! acquires standa

rd materials that it

regularly uses in construction con

tracts for both residential a

nd commercial buildings.

These materials are used to ma

nufacture generic component parts

for inclusion in Village

Apartments' residential buildings. These standard materials rem

ain interchangeable with

other items until they are deployed in a Village Apartments bui

lding. The Company has

made the following purchases and incurred the following costs t

hroughout the

construction progress:

As of June 30, 20X1, in total, Naile

d It! has purchased $75,000

of component

parts. As of June 30, 20X1, $25,000 of component parts remain i

n inventory and

$50,000 have been integrated into t

he project. Further, Nailed

It! has incurred

$12,500 of direct costs to integra

te the component parts into t

he Village

Apartments construction projec

t during the three months ended J

une 30, 20X1.

During the three months ended September 30, 20X1, Nailed It! pu

rchased an

additional $500,000 of component pa

rts ($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 duri

ng the three months ended Septe

mber 30, 20X1.

During the three months ended September 30, 20X1, Nailed It! in

curred an

additional $50,000 of direct costs t

o integrate the component p

arts into the Village

Apartments construction project.

As of September 30, 20X1, Nailed It!

determined that the projec

t was over budget

and revised its cost estimate from $1 million to $1.25 million.

As of December 31 20X1, the construc

tion project was completed.

During the

three months ended December

31, 20X1, Nailed It! purchased an a

dditional

$425,000 of generic component parts

($1 million in total). Of t

he $1 million

component parts, $0 remain in inventory and $750,000 were integ

rated into the

project during the three mont

hs ended December 31, 20X1. Nailed

It! has

incurred $187,500 of direct costs to

integrate the component pa

rts into the Village

Apartments construction projec

t during the three months ended D

ecember 31,

20X1.

If Village Apartments cancels the contract, Nailed It! will be

entitled to reimbursement

for costs incurred for work compl

eted to date plus a margin of

20 percent, which is considered to be a reasonable margin. Nailed It! will not be re

imbursed for any materials

that have been purchased for use

in the contract but have not y

et been used and are still

controlled by Nailed It!.

Required:

1.

Does the performance obligation m

eet any of the criteria or rec

ognition of

revenue over time?

2.

How should the entity recognize re

venue for the s

atisfaction of

its performance

obligation? What amount of rev

enue should be recognized for the

following

periods:

2a.

The three months ended June 30, 20X1?

2b.

The three months ended September 30, 20X1?

2c.

The three months ended December 31, 20X1?