Citation Builders, Inc., builds office buildings and single-family homes. The of
ID: 2501578 • Letter: C
Question
Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructed under contract with reputable buyers. The homes are constructed in developments ranging from 10–20 homes and are typically sold during construction or soon after. To secure the home upon completion, buyers must pay a deposit of 5% 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 2013, Citation began construction of an office building for Altamont Corporation. The total contract price is $19 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows:
Also during 2013, Citation began a development consisting of 12 identical homes. Citation estimated that each home will sell for $540,000, but individual sales prices are negotiated with buyers. Deposits were received for eight of the homes, three of which were completed during 2013 and paid for in full for $540,000 each by the buyers. The completed homes cost $396,000 each to construct. The construction costs incurred during 2013 for the nine uncompleted homes totaled $2,640,000
Answer the following questions assuming that Citation uses the completed contract method for its office building contracts:
What is the amount of gross profit or loss to be recognized for the Altamont contract during 2013 and 2014????
What will Citation report in its December 31, 2013, balance sheet related to this contract (ignore cash)??? (Current Asset)
Answer the following questions assuming that Citation uses the percentage-of-completion method for its office building contracts.
What is the amount of gross profit or loss to be recognized for the Altamont contract during 2013 and 2014?
What will Citation report in its December 31, 2013, balance sheet related to this contract (ignore cash)?
Assume that as of year-end 2014 the estimated cost to complete the office building is $8,700,000 and that Citation uses the percentage-of-completion method.
What is the amount of gross profit or loss to be recognized for the Altamont contract during 2014?
b. How much revenue related to this contract will Citation report in the 2014 income statement?
.
c.What will Citation report in its 2014 balance sheet related to this contract (ignore cash)?
What will Citation report in its 2013 income statement and 2013 balance sheet related to the single-family home business (ignore cash in the balance sheet)?
Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructed under contract with reputable buyers. The homes are constructed in developments ranging from 10–20 homes and are typically sold during construction or soon after. To secure the home upon completion, buyers must pay a deposit of 5% 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 2013, Citation began construction of an office building for Altamont Corporation. The total contract price is $19 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows:
2013 2014 2015 Costs incurred during the year $ 2,926,000 $ 10,124,000 $ 4,350,000 Estimated costs to complete as of year-end 12,474,000 4,350,000 — Billings during the year 1,400,000 11,600,000 6,000,000 Cash collections during the year 1,260,000 8,060,000 9,680,000Explanation / Answer
Question 2a. Year 2013 2014 2015 Total Billing amount 1,400,000.00 11,600,000.00 6,000,000.00 19,000,000.00 Cost 2929000 10124000 4350000 17,403,000.00 Gain (1,529,000.00) 1,476,000.00 1,597,000.00 Question 2c. Cash 1260000 Accounts Receivable 140,000.00 Current Assets 1,400,000.00 Other Assets (Loss) 1,529,000.00 Question 3a. Year 2013 2014 2015 Total Billing amount 1,400,000.00 11,600,000.00 6,000,000.00 19,000,000.00 Cost 2929000 10124000 4350000 17,403,000.00 Gain (1,529,000.00) 1,476,000.00 1,650,000.00 1,597,000.00 % of completion 7.37% 61.05% 31.58% 100.00% Gross Profit reported 117,673.68 975,010.53 504,315.79 1,596,999 Question 3c. Accounts Receivable 140,000.00 Retained Earnings 117,673.68 Question 4a Value of the contract 19,000,000.00 Cost Incured: year 2013 2,929,000.00 year 2014 10,124,000.00 Estimated cost to completion 8,700,000.00 Total Estimated cost 21,753,000.00 Estimated Loss (2,753,000.00) Loss for 2014 = 2,753,000x 61.05% = -1,680,778.95 Question 4b. Citatio will report loss of 1,680,778.95 Question 4c. Accounts Receivable 3,540,000.00 Loss 1,680,778.95