P 6-13 Long-term contract; revenue recognition over time vs, upon project completion (6) Lo6-9 Citation Builders, Inc., builds office buildings and singlefamily 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. Oecasionally, 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 $20 million. Costs incarred, estimated costs to complete at yearend, billings, and cash collections for the life of the contract are as follows: Also during 2021, Citation began a development consisting of 12 identical bomes. Citation estimated that each home will sell for $600,000, bot individual sales prices are negotiated with buyers. Deposits were received for eight of the homes, three of which were coimpleled during 2021 and paid for in full for $600,000 each by the buyers. The completed homes cost $450.000 each to construct. The construction costs incurfed during 2021 for the nine uscompleted homes totaled $2,700,000. Required: 1. Briefly explain the difference between recognizing revenue over time and upon project completion when accounting for long-term construction contracts. 2. Answer the following questions assuming that Citation concludes it does not qualify for revenue recognition over time for its office building contracts: a. How much revenue related to this contract will Citation report in its 2021 and 2022 income statements? b. What is the amount of gross profit of loss to be recognized for the Altamont contract during 2021 and 2022? c. What will Citation report in its December 31, 2021, balance sheet related to this contract? (Ignore cash.) 3. Answer requitements 2a through 2e assuming that Citation recognizes revenue over time according to percentage of completion for its office building contracts. 4. Assume the same information for 2021 and 2022, bot that as of yeh end 2022 the eutimated cost to complete the offlee building is \$9, 000,000. Citation recognizes revenue over time according to percentage of conipletion for its offlee building contricts. a. How much revenue related to this contract will Citation report in the 2022 income statement? b. What is the ansount of yross proft or loss to be recognized for the Altamont contract during 2022? c. What will Citation report in its 2022 balance sheet related to this contract? (lgnore cash.) 5. When should Citation recognize revetue for the cale of its single tamily homes? 6. What will Citation report in its 2021 income statement and 2021 balance sheet related to the singlefamily home basiness (ignore cash in the balance sheet)
