IS1 IS4 Solutions

Solution to Problem IS1: Long-term Construction Contract

Part 1 20A 20B 20C

Previous Cost Incurred 0 2,700,000 7,020,000
Costs incurred current year 2,700,000 4,320,000 4,480,000
Estimated costs to complete 9,300,000 5,980,000 3,600,000
Estimated total costs (ETC) 12,000,000 13,000,000 15,100,000

Estimated Profit:
Contract Revenue 15,000,000 15,000,000 15,000,000
Estimated total costs (12,000,000) (13,000,000) (15,100,000)
Total estimated profit(loss) 3,000,000 2,000,000 (100,000)

Profit recognized:
Estimate Profit x costs incurred 675,000 405,000 (1,180,000)* ETC
*Consistent with the overall preference for conservative accounting treatment, estimated losses are recognized immediately. Here, the loss along with an adjustment to previously recorded profit is recorded in the period that the loss is estimated.

Part 2

Item
(Describe items that would appear on the balance sheet.)

Amount

Classification
(Circle one.)

12/31/20A

Accounts receivable
$225,000
CA

CIP > billings
$1,125,000
CA

12/31/20B

Accounts receivable
$825,000
CA

Billings > CIP
$150,000
CL

20A 20B
Previous billings 0 2,250,000
Billings during year 2,250,000 6,000,000
Cash collected in previous years 0 (2,025,000)
Cash collected during year (2,025,000) (5,400,000)
Accounts Receivable 225,000 825,000

Costs incurred in previous years 0 2,700,000
Costs incurred during year 2,700,000 4,320,000
Profit recorded in previous years 0 675,000
Profit recorded during year 675,000 405,000
Billings in previous years 0 (2,250,000)
Current billings (2,250,000) (6,000,000)
CIP greater than billings 1,125,000 (150,000)

Solution to Problem IS4: DISCONTINUED OPERATIONS

For the years ended
December 31, 20C 20B 20A

Income from continuing
Operations 32,250,000 24,670,000 22,850,0001

Income (loss) from discontinued operations 305,0002 (945,000)3(1,350,000)

Net income 32,555,000 23,725,000