Problem 613 Algo Longterm contract revenue recognition over time vs upon project completion LO69 Citation Builders Incorporated builds office buildings and singlefamily homes The office buildings are constructed under contract with reputable buyers The homes are constructed in developments ranging from 1020 homes and are typically sold during construction or soon after To secure the home upon completion buyers must pay a deposit of 10 of the price of the home with the remaining balance due upon completion of the house and transfer of title Failure to pay the full amount results in forfeiture of the down payment Occasionally homes remain unsold for as long as three months after construction In these situations sales price reductions are used to promote the sale During 2024 Citation began construction of an office building for Altamont Corporation The total contract price is 26 million Costs incurred estimated costs to complete at yearend billings and cash collections for the life of the contract are as follows 2024 2025 2026 Costs incurred during the year 5200000 12350000 5850000 Estimated costs to complete as of yearend 15600000 5850000 Billings during the year 2600000 13000000 10400000 Cash collections during the year 2340000 11660000 12000000 Also during 2024 Citation began a development consisting of 12 identical homes Citation estimated that each home will sell for 920000 but individual sales prices are negotiated with buyers Deposits were received for eight of the homes three of which were completed during 2024 and paid for in full for 920000 each by the buyers The completed homes cost 690000 each to construct The construction costs incurred during 2024 for the nine uncompleted homes totaled 4140000 Required 1 Which method is most equivalent to recognizing revenue at the point of delivery 2 Answer the following questions assuming that Citation concludes it does not qualify for revenue recognition over time for its office building contracts 2a How much revenue related to this contract will Citation report in its 2024 and 2025 income statements 2b What is the amount of gross profit or loss to be recognized for the Altamont contract during 2024 and 2025 2c What will Citation report in its December 31 2024 balance sheet related to this contract Ignore cash 3 Answer the following questions assuming that Citation recognizes revenue over time according to percentage of completion for its office building contracts 3a How much revenue related to this contract will Citation report in its 2024 and 2025 income statements 3b What is the amount of gross profit or loss to be recognized for the Altamont contract during 2024 and 2025 3c What will Citation report in its December 31 2024 balance sheet related to this contractIgnore cash 4 Assume the same information for 2024 and 2025 but that as of yearend 2025 the estimated cost to complete the office building is 11700000 Citation recognizes revenue over time according to percentage of completion for its office building contracts 4a How much revenue related to this contract will Citation report in the 2025 income statement 4b What is the amount of gross profit or loss to be recognized for the Altamont contract during 2025 4c What will Citation report in its 2025 balance sheet related to this contractIgnore cash 5 Which method of accounting should Citation Builders Incorporated adopt for its singlefamily houses 6 What will Citation report in its 2024 income statement and 2024 balance sheet related to the singlefamily home business ignore cash in the balance sheet