Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The project began in 2011 and was completed in 2012. Data relating to the contract are summarized below:
2009 2010
costs incurred during the year $300,000 $1,575,000
estimated costs to complete as12/31 1,200,000 0
billings during the year 380,000 1,620,000
cash collections during the year 250,000 1,750,000
Required:
1.Compute the amount of gross profit or loss to be recognized in 2011 and 2012 using the percentage-of-completion method.
2.Compute the amount of gross profit or loss to be recognized in 2011 and 2012 using the completed contract method.
3.Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2011 using the percentage-of-completion method.
4.Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2011 using the completed contract method.