E $6-22$

Long$-$term contract; revenue recognition upon project completion; loss projected on entire project

LO$6-8,$ LO$6-9$

$[$This is a variation of E $6-21$ focusing on the revenue recogrition upon project completion.$]$

On February $1,2024,$ Arrow Construction Company entered into a three$-$year construction contract to build a bridge for a price of $$8,000,000.$ During $2024,$ costs of $$2,000,000$ were incurred, with estimated costs of $$4,000,000$ yet to be incurred. Billings of $$2,500,000$ were sent, and cash collected was $$2,250,000.$

In $2025,$ costs incurred were $$2,500,000$ with remaining costs estimated to be $$3,600,000.2025$ billings were $$2,750,000,$ and $$2,475,000$ cash was collected. The project was completed in $2026$ after additional costs of $$3,800,000$ were incurred. The company's fiscal year$-$end is December $31.$ This project does not qualify for revenue recognition over tirne.

Required:

Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years.

Prepare journal entries for $2024$ and $2025$ to record the transactions described $($credit "various accounts" for construction costs incurred$).$

Prepare a parial balance sheet to show the presentation of the project as of December $31,2024$ and $2025.$ Indicate whether any of the amounts shown are contract assets or contract liabilities.