At the Beginning of 2013,the Arbuckle Construction Company Signed a Contract

question 25

Essay

At the beginning of 2013,the Arbuckle Construction Company signed a contract with the state to build a highway for $10,000,000.The project is estimated to be completed by the end of 2015.Arbuckle will bill the state in installments over the construction period per a schedule in the contract.Information related to the contract is as follows:
$\begin{array}{ll}&2013&2014&2015\\\text {Actual construction costs }\\\text {incurred during the year }&\$3,000,000&\$2,200,000&\$3,300,000\\\text { Actual construction costs}\\\text { incurred in prior years }&-&3,000,000&5,200,000\\\text { Cumulative actual construction costs}&3,000,000&5,200,000&8,500,000\\\text { Estimated costs to complete at}\\\text {end of year }&\$4,500,000&\$2,800,000&\$-\\\text {Total construction costs }&7,500,000&8,000,000&8,500,000\\\\\text {Billings made over the course }\\\text { of the year }&\$3,500,000&\$3,000,000&\$3,500,000\\\text {Cash collections during the year }&2,800,000&3,300,000&3,900,000\end{array}$

Because the highway is being built in an area that is home to the Eastern Spadefoot Toad (an endangered species),Arbuckle is required to construct a toad habitat to replace the one being lost in the project.As Arbuckle has no prior experience building swamps,it believes it is not able to reasonably estimate the contract's completion costs.Assume that Arbuckle follows IFRS rules when accounting for construction contracts.
Required:
Prepare the journal entry that Arbuckle would make at the end of each year to appropriately recognize profit on the project.

---

Definitions:

UCC

Refers to the Uniform Commercial Code, a set of laws that govern commercial transactions in the United States.

Cash Flow

The net amount of cash being transferred into and out of a business, especially affecting liquidity.

Dividends

Dividends represent distributions of earnings from a company to its shareholders, typically originating from the firm's profits.

New Debt

Refers to additional borrowing or financial obligations taken on by an individual, company, or government.