On January 1, 2014, Stephenson Corporation agreed to construct a community centre for the Town of Tuason at a price of $4.5 million. At that time, Stephenson estimated that it would take two years to complete the community centre for a total cost of $3.3 million. During 2014, Stephenson incurred $1,574,000 in construction costs on the project, and halted construction on August 31, 2014, when the company's construction workers went on strike after failed union negotiations for increased wages. The company's construction workers were still on strike on September 30, 2014, Stephenson’s; financial statement date. It became clear to management that with ongoing negotiations for higher wages, it would be difficult to estimate the costs to complete construction of the community centre. As of September 30, 2014, Stephenson has billed the Town of Tuason a total of $1.5 million and collected 80% of the amount billed. Stephenson prepares financial statements in accordance with IFRS. The company believes that it will be able to collect any amounts owing under the contract for work performed.
Instructions
Assume the earnings approach is used.
(a) Calculate the amount of revenue and gross profit to be recognized in 2014.
(b) Prepare all necessary journal entries for 2014.
(c) Show how the details related to this construction contract would be disclosed on the 2014 statement of financial position and income statement.
(d) Assume that construction is completed on September 15, 2015, and that between September 30, 2014, and completion of construction, Stephenson incurred $3,025,000 in construction costs. As of September 30, 2015, Stephenson has billed the Town of Tuason a total of $4.5 million and collected 90% of the amount billed. Show how the details related to this construction contract would be disclosed on the 2015 statement of financial position and income statement.
(e) Repeat parts (a) through (d) assuming that Stephenson prepares financial statements in accordance with ASPE.