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Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The project

began in 2016 and was completed in 2017. Data relating to the contract are summarized below:

2016:

Cost incurred during the year: $300,000

Estimated costs to complete as of 12/31 1,200,000

Billings during the year 380,000

Cash collections during the year 250,000

2017:

Costs incurred during the year $1,575,000

Estimated costs to complete as of 12/31 -0-

Billings during the year $1,620,000

Cash collections during the year $1,750,000

1. Compute the amount of revenue and gross profit or loss to be recognized in 2016 and 2017 assuming

Nortel recognizes revenue over time according to percentage of completion.

2. Compute the amount of revenue and gross profit or loss to be recognized in 2016 and 2017 assuming this

project does not qualify for revenue recognition over time.

3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the

end of 2016 assuming Nortel recognizes revenue over time according to percentage of completion.

4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the

end of 2016 assuming this project does not qualify for revenue recognition over time.

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