Canvas Corp. is a large construction company that reports under IFRS. They have recently signed a contract

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Question:

Canvas Corp. is a large construction company that reports under IFRS. They have recently signed a contract with Ontario Tech University to build an addition to the library. Canvas began work on the contract at the beginning of 2020. Contract information and estimates are as follows:

Contract price ……………………………………………….. $ 2,000,000

Estimated costs Labour.................................................... $ 435,000

Materials and subcontracts ................................................. 765,000

Indirect costs........................................................................ 300,000 1,500,000

Estimated gross profit................................................................... $ 500,000

At the end of 2020, the following was the actual status of the contract:

Progress Billings to date ......................... $ 1,115,000 Costs incurred to date:

Labour.................................................................................. $ 207,000

Materials and subcontracts ................................................. 468,000

Indirect costs........................................................................ 75,000

Latest forecast of total costs of project (no change).................... $ 1,500,000

At the end of 2021, progress billings to date totalled $1,900,000 and costs incurred to date totalled $1,395,000 with a forecast of $155,000 remaining costs to complete. Cash collected was $980,000 during 2020 and $1,000,000 during 2021. Job is expected to be completed in 2022.

Instructions

a) Calculate the gross profit that would be reported on this contract for 2020 and 2021.

b) Prepare all journal entries for 2020.

c) Indicate the account(s) and the amount(s) that would be shown on Canvas’ statement of

d) Assume all the same facts, except that the forecast of remaining costs in 2021 is not $155,000, but $555,000. How much income (loss) would Canvas then report for the year 2021?

e) Assume you are a shareholder of Canvas Corp. Do you think that recognizing revenue over time rather than at a point in time makes the financial statements more useful? Explain your answer.