Question: Preparing Financial Statement Presentation for Long-Term Contracts Watson Construction Company contracted to build a plant for $1,000,000. Construction started in January 2020 and was completed
Preparing Financial Statement Presentation for Long-Term Contracts Watson Construction Company contracted to build a plant for $1,000,000. Construction started in January 2020 and was completed in November 2021. Watson uses the cost-to-cost method to measure the completion of its performance obligations. Data relating to the contract follow.
| 2020 | 2021 | |
|---|---|---|
| Costs incurred during year | $580,000 | $240,000 |
| Estimated additional costs to complete | 250,000 | |
| Billings during year | 540,000 | 460,000 |
| Cash collections during year | 500,000 | 500,000 |
Required a. What is the income statement impact of the contract assuming (1) revenue is recognized at a point in time, and (2) that revenue is recognized over time for 2020 and 2021? Note: Do not round until your final answers; round your final answers to the nearest whole dollar.
| Revenue at | Revenue | |
|---|---|---|
| a point in time | over time | |
| Income statement | (1) | (2) |
| Income reported: 2020 | ||
| Income reported: 2021 |
b. What is the balance sheet impact of the contract assuming (1) revenue is recognized at a point in time, and (2) that revenue is recognized over time for 2020 and 2021? Note: Do not round until your final answers; round your final answers to the nearest whole dollar.
| Revenue at | Revenue | |
|---|---|---|
| a point in time | over time | |
| Balance sheet | (1) | (2) |
| Receivables: 2020 | ||
| Receivables: 2021 | ||
| InventoryConstruction in process, net of billings: 2020 | ||
| InventoryConstruction in process, net of billings: 2021 |
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