Respuesta :
Answer:
Nortel Networks
1. Computation of revenue and gross profit or loss in 2016 and 2017, assuming Nortel recognizes revenue over time according to percentage of completion:
a. Revenue to be recognized in 2016 under percentage of completion:
Cost incurred/Cost incurred + Estimated cost to completion x $2,000,000
= $300,000/$1,875,000 x $2,000,000
= $320,000
b. Gross profit:
Revenue = $320,000
Costs incurred = 300,000
Gross profit $20,000
c.. Revenue to be recognized in 2017 under percentage of completion:
Cost incurred/Cost incurred + Estimated cost to completion x $2,000,000
= $1,575,000/$1,875,000 x $2,000,000
= $1,680,000
d. Gross profit:
Revenue = $1,680,000
Costs incurred = 1,575,000
Gross profit $105,000
2. Computation of revenue and gross profit or loss in 2016 and 2017, assuming project does not qualify for revenue recognition over time:
2016 Revenue = Cost plus Profit margin
= $300,000 x 1.1
= $330,000
2017 Revenue = Total Revenue minus 2016 Revenue
= $2,000,000 - $330,000
= $1,670,000
3. Nortel Networks' Partial Balance Sheet for year ended December 31, 2016, under recognizing revenue over time according to percentage of completion:
Current Assets:
Accounts Receivable $130,000
Cash $250,000
Current Liabilities:
Deferred Revenue $60,000
4. Nortel Networks' Partial Balance Sheet for year ended December 31, 2016, under revenue not qualifying for recognition over time:
Current Assets:
Accounts Receivable $130,000
Cash $250,000
Current Liabilities:
Deferred Revenue $50,000
Explanation:
a) Data and Calculations:
Contract sum = $2,000,000
2016:
Cost incurred during the year: $300,000
Estimated costs to complete as of 12/31 1,200,000
Billings during the year 380,000
Cash collections during the year 250,000
2016 Accounts Receivable:
Billings during the year = $380,000
Cash collections during the year = (250,000)
Balance b/d $130,000
2016 Deferred Revenue:
Revenue during the year = $320,000
Billings under the year = 380,000
Deferred Revenue $60,000
2017:
Costs incurred during the year $1,575,000
Estimated costs to complete as of 12/31 -0-
Billings during the year $1,620,000
Cash collections during the year $1,750,000
2017 Accounts Receivable:
Balance b/d $130,000
Billings during the year 1,620,000
Cash collections during the year (1,750,000)
Balance b/d $0
Point in Time Revenue Recognition:
Revenue = Costs incurred + estimated profit margin
Estimated Profit margin = Profit margin = $2,000,000 - ($300,000 + $1,500,000)
= $200,000
Profit margin ratio = $200,000/$2,000,000 x 1`00 = 10%
2016 Accounts Receivable:
Billings during the year = $380,000
Cash collections during the year = (250,000)
Balance b/d $130,000
2016 Deferred Revenue:
Recognized revenue during the year = $330,000
Billings under the year = 380,000
Deferred Revenue $50,000
2017 Accounts Receivable:
Balance b/d $130,000
Billings during the year 1,620,000
Cash collections during the year (1,750,000)
Balance b/d $0
