In Early 2018, Ecotravel Corp

question 104

Essay

In early 2018, Ecotravel Corp. won a contract to build a rapid transit line connecting downtown Vancouver to the airport and the suburb of Richmond (the RAV line). The contract was for $2.2 billion to be received over the construction period of six years, ending in November 2024. Ecotravel has a December 31 year-end and uses the percentage of completion method to account for long-term contracts.
Required:
a. Ecotravel's management expects the gross profit on the total project to be 20%, and that $352 million would be incurred on the project by December 31, 2018.
1. How much gross profit (or loss)will Ecotravel record in the 2018 fiscal year if management's estimates are accurate?
2. Provide the journal entry to record revenue, cost of goods sold, and expected loss (if applicable)for fiscal 2018.
b. Assume that it is now early 2022 and you are preparing the adjusting entries for 2021. The accounting records indicate that, by the end of 2020, a total of $758 million in revenue and $680 million in cost of goods sold had been recorded. You also know that $372 million in costs were incurred on the project in 2021, and management's best estimates indicate another $1,208 million in costs will be required to complete the project.
1. How much gross profit (or loss)should Ecotravel record in the 2021 fiscal year if management's estimates are accurate?
2. Provide the journal entry to record revenue, cost of goods sold, and expected loss (if applicable)for fiscal year 2021.

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Definitions:

Causal Explanations

Statements or analysis that identify reasons or causes for certain phenomena.

Slippery Slope Fallacy

A logical fallacy that assumes a relatively small first step leads to a chain of related events culminating in some significant effect.

Warranted Arguments

Arguments that are justified or backed up by substantial evidence or reason.

False Cause Fallacy

A logical fallacy where a cause-and-effect relationship is incorrectly assumed between two events simply because they occur together.