On February 1, 2021, Arrow Construction Company entered into athree-year construction contract to build a bridge for a price of$8,350,000. During 2021, costs of $2,140,000 were incurred, withestimated costs of $4,140,000 yet to be incurred. Billings of$2,668,000 were sent, and cash collected was $2,390,000.
In 2022, costs incurred were $2,668,000 with remaining costsestimated to be $3,810,000. 2022 billings were $2,918,000, and$2,615,000 cash was collected. The project was completed in 2023after additional costs of $3,940,000 were incurred. The company’sfiscal year-end is December 31. This project does not qualify forrevenue recognition over time.
Required:
1. Calculate the amount of revenue and gross profit or loss tobe recognized in each of the three years.
2a. Prepare journal entries for 2021 to record the transactionsdescribed (credit "various accounts" for construction costsincurred).
2b. Prepare journal entries for 2022 to record the transactionsdescribed (credit "various accounts" for construction costsincurred).
3a. Prepare a partial balance sheet to show the presentation ofthe project as of December 31, 2021.
3b. Prepare a partial balance sheet to show the presentation ofthe project as of December 31, 2022.
