Nam Construction, a sub-contractor, entered into a contract with the main contractor, Ming Company, on March 6, 2018 to provide civil engineering services at the contract fee of $10,000,000. The contract spans three years from 2018 to 2020. Costs incurred, estimated costs to complete at year-end, billings and cash collections for the life of the contract are shown below:
2018 2019 2020
Costs incurred during the year $ 4,800,000 $ 2,200,000 $ 1,800,000
Estimated costs to complete as of year-end 4,200,000 2,050,000
Billings during the year 3,300,000 3,200,000 3,500,000
Cash collections during the year 2,800,000 3,000,000 3,700,000
Required:
1. Using costs as a measure of the extent to which performance obligations are satisfied over time, what is the percentage of completion at the end of 2018, 2019, and 2020?
2. How much revenue related to this contract will Nam report in its 2018, 2019, and 2020 income statements?
3. What is the amount of contract profit or loss to be recognized for the Ming contract during 2018, 2019, and 2020 income statements?
4. Prepare all necessary journal entries for each of the years. Assume that construction costs are paid in cash.
5. Prepare a partial income statement to show the revenue and expenses arising from this contract in 2018, 2019, and 2020.
6. Prepare a partial but balanced statement of financial position at the end of 2018, 2019, and 2020 to show the items related to the contract, stating clearly contract asset or contract liability and other relevant accounts. Include cash balances and accumulated retained earnings.
