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 $22 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 $ 4,400,000 $ 10,450,000 $ 4,950,000Estimated costs to complete as of year-end 13,200,000 4,950,000 âBillings during the year 2,200,000 11,000,000 8,800,000 Cashcollections during the year 1,980,000 9,620,000 10,400,000 Alsoduring 2018, Citation began a development consisting of 12identical homes. Citation estimated that each home will sell for$840,000, 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 $840,000 each by thebuyers. The completed homes cost $630,000 each to construct. Theconstruction costs incurred during 2018 for the nine uncompletedhomes totaled $3,780,000.
Required: 1. Which method is most equivalent to recognizingrevenue at the point of delivery?
2. Answer the following questions assuming that Citation usesthe completed contract method for its office buildingcontracts:
2-a. How much revenue related to this contract will Citationreport in its 2018 and 2019 income statements?
2-b. What is the amount of gross profit or loss to be recognizedfor the Altamont contract during 2018 and 2019?
2-c. What will Citation report in its December 31, 2018, balancesheet related to this contract? (Ignore cash.)
3. Answer the following questions assuming that Citation usesthe percentage-of-completion method for its office buildingcontracts.
3-a. How much revenue related to this contract will Citationreport in its 2018 and 2019 income statements?
3-b. What is the amount of gross profit or loss to be recognizedfor the Altamont contract during 2018 and 2019?
3-c. What will Citation report in its December 31, 2018, balancesheet related to this contract? (Ignore cash.)
4. Assume the same information for 2018 and 2019, but that as ofyear-end 2019 the estimated cost to complete the office building is$9,900,000. Citation uses the percentage-of-completion method forits office building contracts.
4-a. How much revenue related to this contract will Citationreport in the 2019 income statement?
4-b. What is the amount of gross profit or loss to be recognizedfor the Altamont contract during 2019?
4-c. What will Citation report in its 2019 balance sheet relatedto this contract? (Ignore cash.)
5. Which method of accounting should Citation Builders, Incadopt for its single-family houses?
6. What will Citation report in its 2018 income statement and2018 balance sheet related to the single-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 $22 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 $ 4,400,000 $ 10,450,000 $ 4,950,000Estimated costs to complete as of year-end 13,200,000 4,950,000 âBillings during the year 2,200,000 11,000,000 8,800,000 Cashcollections during the year 1,980,000 9,620,000 10,400,000 Alsoduring 2018, Citation began a development consisting of 12identical homes. Citation estimated that each home will sell for$840,000, 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 $840,000 each by thebuyers. The completed homes cost $630,000 each to construct. Theconstruction costs incurred during 2018 for the nine uncompletedhomes totaled $3,780,000.
Required: 1. Which method is most equivalent to recognizingrevenue at the point of delivery?
2. Answer the following questions assuming that Citation usesthe completed contract method for its office buildingcontracts:
2-a. How much revenue related to this contract will Citationreport in its 2018 and 2019 income statements?
2-b. What is the amount of gross profit or loss to be recognizedfor the Altamont contract during 2018 and 2019?
2-c. What will Citation report in its December 31, 2018, balancesheet related to this contract? (Ignore cash.)
3. Answer the following questions assuming that Citation usesthe percentage-of-completion method for its office buildingcontracts.
3-a. How much revenue related to this contract will Citationreport in its 2018 and 2019 income statements?
3-b. What is the amount of gross profit or loss to be recognizedfor the Altamont contract during 2018 and 2019?
3-c. What will Citation report in its December 31, 2018, balancesheet related to this contract? (Ignore cash.)
4. Assume the same information for 2018 and 2019, but that as ofyear-end 2019 the estimated cost to complete the office building is$9,900,000. Citation uses the percentage-of-completion method forits office building contracts.
4-a. How much revenue related to this contract will Citationreport in the 2019 income statement?
4-b. What is the amount of gross profit or loss to be recognizedfor the Altamont contract during 2019?
4-c. What will Citation report in its 2019 balance sheet relatedto this contract? (Ignore cash.)
5. Which method of accounting should Citation Builders, Incadopt for its single-family houses?
6. What will Citation report in its 2018 income statement and2018 balance sheet related to the single-family home business(ignore cash in the balance sheet)?
