citation builders inc builds office buildings and single family homes the offic 381045

Citation Builders, Inc., builds office buildings and single family homes. The office buildings are constructed under contract with reputable buyers. The homes are constructed in developments ranging from 10’20 homes and are typically sold during construction or soon after. To secure the home upon completion, buyers must pay a deposit of 5% of the price of the home with the remaining balance due upon completion of the house and transfer of title. Failure to pay the full amount results in forfeiture of the down payment. Occasionally, homes remain unsold for as long as three months after construction. In these situations, sales price reductions are used to promote the sale. During 2013, Citation began construction of an office building for Altamont Corporation. The total contract price is $20 million. Costs incurred, estimated costs to complete at year end, billings, and cashcollections for the life of the contract are as follows: 2013 2014 2015 Costs incurred during the year $ 3,454,000 $ 9,821,000 $ 4,425,000 Estimated costs to complete as of year end 12,246,000 4,425,000 ” Billings during the year 1,700,000 12,800,000 5,500,000 Cash collections during the year 1,530,000 8,330,000 10,140,000 ________________________________________ Also during 2013, Citation began a development consisting of 12 identical homes. Citation estimated that each home will sell for $570,000, but individual sales prices are negotiated with buyers. Deposits were received for eight of the homes, three of which were completed during 2013 and paid for in full for $570,000 each by the buyers. The completed homes cost $423,000 each to construct. The construction costs incurred during 2013 for the nine uncompleted homes totaled $2,670,000. Required: 1. The percentage of completion method of recognizing revenues and costs on long term construction contracts is equivalent to recognizing revenue at the point of delivery. True or False 2. Answer the following questions assuming that Citation uses the completed contract method for its officebuilding contracts: a. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2013 and 2014? b. How much revenue related to this contract will Citation report in its 2013 and 2014 income statements? c. What will Citation report in its December 31, 2013, balance sheet related to this contract (ignore cash)? 3. Answer the following questions assuming that Citation uses the percentage of completion method for its office building contracts. a. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2013 and 2014? b. How much revenue related to this contract will Citation report in its 2013 and 2014 income statements? c. What will Citation report in its December 31, 2013, balance sheet related to this contract (ignore cash)? 4. Assume that as of year end 2014 the estimated cost to complete the office building is $8,850,000 and that Citation uses the percentage of completion method. a. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2014? b. How much revenue related to this contract will Citation report in the 2014 income statement? c. What will Citation report in its 2014 balance sheet related to this contract (ignore cash)? 5. Which method of accounting should Citation Builders, Inc adopt for its single family houses? Percentage of completion method or Completed contract method 6. What will Citation report in its 2013 income statement and 2013 balance sheet related to the single family home business (ignore cash in the balance sheet)?