Citation Builders, Inc., builds office buildings andsingle-family homes. The office buildings are constructed undercontract with reputable buyers. The homes are constructed indevelopments ranging from 10â20 homes and are typically sold duringconstruction or soon after. To secure the home upon completion,buyers must pay a deposit of 10% of the price of the home with theremaining balance due upon completion of the house and transfer oftitle. Failure to pay the full amount results in forfeiture of thedown payment. Occasionally, homes remain unsold for as long asthree months after construction. In these situations, sales pricereductions are used to promote the sale. During 2018, Citationbegan construction of an office building for Altamont Corporation.The total contract price is $13 million. Costs incurred, estimatedcosts to complete at year-end, billings, and cash collections forthe life of the contract are as follows: 2018 2019 2020 Costsincurred during the year $ 2,600,000 $ 6,175,000 $ 2,925,000Estimated costs to complete as of year-end 7,800,000 2,925,000 âBillings during the year 1,300,000 6,500,000 5,200,000 Cashcollections during the year 1,170,000 5,030,000 6,800,000 Alsoduring 2018, Citation began a development consisting of 12identical homes. Citation estimated that each home will sell for$680,000, but individual sales prices are negotiated with buyers.Deposits were received for eight of the homes, three of which werecompleted during 2018 and paid for in full for $680,000 each by thebuyers. The completed homes cost $510,000 each to construct. Theconstruction costs incurred during 2018 for the nine uncompletedhomes totaled $3,060,000. Required: 1. Which method is mostequivalent to recognizing revenue at the point of delivery? 2.Answer the following questions assuming that Citation uses thecompleted contract method for its office building contracts: 2-a.How much revenue related to this contract will Citation report inits 2018 and 2019 income statements? 2-b. What is the amount ofgross profit or loss to be recognized for the Altamont contractduring 2018 and 2019? 2-c. What will Citation report in itsDecember 31, 2018, balance sheet related to this contract? (Ignorecash.) 3. Answer the following questions assuming that Citationuses the percentage-of-completion method for its office buildingcontracts. 3-a. How much revenue related to this contract willCitation report in its 2018 and 2019 income statements? 3-b. Whatis the amount of gross profit or loss to be recognized for theAltamont contract during 2018 and 2019? 3-c. What will Citationreport in its December 31, 2018, balance sheet related to thiscontract? (Ignore cash.) 4. Assume the same information for 2018and 2019, but that as of year-end 2019 the estimated cost tocomplete the office building is $5,850,000. Citation uses thepercentage-of-completion method for its office building contracts.4-a. How much revenue related to this contract will Citation reportin the 2019 income statement? 4-b. What is the amount of grossprofit or loss to be recognized for the Altamont contract during2019? 4-c. What will Citation report in its 2019 balance sheetrelated to this contract? (Ignore cash.) 5. Which method ofaccounting should Citation Builders, Inc adopt for itssingle-family houses? 6. What will Citation report in its 2018income statement and 2018 balance sheet related to thesingle-family home business (ignore cash in the balance sheet)?
Citation Builders, Inc., builds office buildings andsingle-family homes. The office buildings are constructed undercontract with reputable buyers. The homes are constructed indevelopments ranging from 10â20 homes and are typically sold duringconstruction or soon after. To secure the home upon completion,buyers must pay a deposit of 10% of the price of the home with theremaining balance due upon completion of the house and transfer oftitle. Failure to pay the full amount results in forfeiture of thedown payment. Occasionally, homes remain unsold for as long asthree months after construction. In these situations, sales pricereductions are used to promote the sale. During 2018, Citationbegan construction of an office building for Altamont Corporation.The total contract price is $13 million. Costs incurred, estimatedcosts to complete at year-end, billings, and cash collections forthe life of the contract are as follows: 2018 2019 2020 Costsincurred during the year $ 2,600,000 $ 6,175,000 $ 2,925,000Estimated costs to complete as of year-end 7,800,000 2,925,000 âBillings during the year 1,300,000 6,500,000 5,200,000 Cashcollections during the year 1,170,000 5,030,000 6,800,000 Alsoduring 2018, Citation began a development consisting of 12identical homes. Citation estimated that each home will sell for$680,000, but individual sales prices are negotiated with buyers.Deposits were received for eight of the homes, three of which werecompleted during 2018 and paid for in full for $680,000 each by thebuyers. The completed homes cost $510,000 each to construct. Theconstruction costs incurred during 2018 for the nine uncompletedhomes totaled $3,060,000. Required: 1. Which method is mostequivalent to recognizing revenue at the point of delivery? 2.Answer the following questions assuming that Citation uses thecompleted contract method for its office building contracts: 2-a.How much revenue related to this contract will Citation report inits 2018 and 2019 income statements? 2-b. What is the amount ofgross profit or loss to be recognized for the Altamont contractduring 2018 and 2019? 2-c. What will Citation report in itsDecember 31, 2018, balance sheet related to this contract? (Ignorecash.) 3. Answer the following questions assuming that Citationuses the percentage-of-completion method for its office buildingcontracts. 3-a. How much revenue related to this contract willCitation report in its 2018 and 2019 income statements? 3-b. Whatis the amount of gross profit or loss to be recognized for theAltamont contract during 2018 and 2019? 3-c. What will Citationreport in its December 31, 2018, balance sheet related to thiscontract? (Ignore cash.) 4. Assume the same information for 2018and 2019, but that as of year-end 2019 the estimated cost tocomplete the office building is $5,850,000. Citation uses thepercentage-of-completion method for its office building contracts.4-a. How much revenue related to this contract will Citation reportin the 2019 income statement? 4-b. What is the amount of grossprofit or loss to be recognized for the Altamont contract during2019? 4-c. What will Citation report in its 2019 balance sheetrelated to this contract? (Ignore cash.) 5. Which method ofaccounting should Citation Builders, Inc adopt for itssingle-family houses? 6. What will Citation report in its 2018income statement and 2018 balance sheet related to thesingle-family home business (ignore cash in the balance sheet)?
