iNTERMEDIATE FINANCIAL REPORTING
Tri Dimensions Inc. (Tri) is a construction firm that specializes in the marine industry. Tri reports under ASPE and has a December 31 year end.
In February 2021, Tri entered into a contract with Lexicon Boating (Lexicon) to construct a dock for commercial use. It is estimated to take two years to build the commercial dock. The contract price is $145,000. At December 31, 2021, construction was 75% complete, based on costs incurred to date versus total expected costs.
Based on the terms of the contract, when the dock is complete, Lexicon is to send an external engineer to inspect it and sign off on completion.
Prior to December 31, 2021, Tri had received payment of 50% of the contract price, with the remainder to be received once the dock is completed and inspected. Each unit has a gross profit margin of 27%, and costs to date have been recorded in a work-in-progress inventory account.
Tri’s controller has not recorded any revenue from this contract, as she is under the impression that revenue cannot be recorded until the dock is inspected and the engineer has signed off on the work.
Determine how to account for this transaction in Tri’s financial statements as at December 31, 2021.
Record any required adjusting journal entries by Tri at December 31, 2021.