QUESTION 4

Arizona Desert Homes (ADH) constructed a new subdivision during 2023 and 2024 under contract with Cactus Development Company. Relevant data are summarized below:

Contract amount $ 3,000,000Cost:20231,200,000 2024600,000Gross profit:2023800,000 2024400,000Contract billings:20231,500,000 20241,500,000

ADH recognizes revenue over time with respect to these contracts.

In its December 31, 2023, balance sheet, ADH would report:

the contract asset, deferred profit, of $400,000. the contract asset, cost and profits in excess of billings, of $500,000. the contract asset, contract amount in excess of billings, of $1,500,000. the contract liability, billings in excess of cost, of $300,000.

___________

QUESTION 5

Arizona Desert Homes (ADH) constructed a new subdivision during 2023 and 2024 under contract with Cactus Development Company. Relevant data are summarized below:

Contract amount $ 3,000,000Cost:20231,200,000 2024600,000Gross profit:2023800,000 2024400,000Contract billings:20231,500,000 20241,500,000

ADH recognizes revenue over time with respect to these contracts.

For 2024, what is the journal entry to record revenue?

Account TitleDebitCreditAccounts receivable1,500,000 Cost of construction 600,000Gross profit 600,000Deferred revenue 300,000 Account TitleDebitCreditAccounts receivable1,500,000 Revenue from long-term contracts 1,500,000 Account TitleDebitCreditCost of construction2,000,000 Gross profit1,000,000 Revenue from long-term contracts 3,000,000 Account TitleDebitCreditConstruction in progress400,000 Cost of construction600,000 Revenue from long-term contracts 1,000,000