# Step 1: Calculate Percentage of Completion and Revenue Recognized **Formula:** \[ \text{Percentage of Completion} = \frac{\text{Cost incurred to date}}{\text{Total estimated cost}} \] ## **2027:** - **Cost incurred to date:** $2,044,000 - **Estimated cost to complete at end of 2027:** $5,256,000 - **Total estimated cost:** $2,044,000 + $5,256,000 = $7,300,000 - **Percentage of completion:** \[ \frac{2,044,000}{7,300,000} = .28 \text{ or } 28\% \] - **Revenue recognized (2027):** \[ \$10,000,000 \times .28 = \$2,800,000 \] **Explanation:** We calculate the percentage of completion for 2027 and use it to determine the revenue to recognize in that year. --- ## **2028:** - **Cumulative cost incurred to date:** $2,044,000 (2027) + $2,628,000 (2028) = $4,672,000 - **Estimated cost to complete at end of 2028:** $2,628,000 - **Total estimated cost:** $4,672,000 + $2,628,000 = $7,300,000 - **Percentage of completion:** \[ \frac{4,672,000}{7,300,000} = .64 \text{ or } 64\% \] - **Cumulative revenue recognized (2028):** \[ \$10,000,000 \times .64 = \$6,400,000 \] - **Revenue recognized in 2028:** \[ \$6,400,000 - \$2,800,000 = \$3,600,000 \] **Explanation:** We update the cost to date and estimated cost to complete for 2028, compute the new percentage of completion, and calculate the additional revenue to recognize in 2028. --- # Step 2: Prepare Partial Balance Sheet Items ### **Relevant Accounts:** - **Contract asset (CIP in excess of billings)**: If revenue recognized > billings to date. - **Contract liability (Billings in excess of CIP)**: If billings to date > revenue recognized. - **Accounts receivable**: Billings - cash collections --- ### **2027:** - **Revenue recognized to date:** $2,800,000 - **Billings to date:** $2,170,000 - **Cash collected:** $1,885,000 - **Accounts receivable:** $2,170,000 - $1,885,000 = $285,000 - **CIP in excess of billings:** $2,800,000 (revenue recognized) - $2,170,000 (billings) = $630,000 **Explanation:** We compare revenue recognized to billings to date to determine if it’s an asset (CIP in excess of billings). Accounts receivable is the difference between billed and collected amounts. --- ### **2028:** - **Revenue recognized to date:** $6,400,000 - **Billings to date:** $2,170,000 (2027) + $2,502,000 (2028) = $4,672,000 - **Cash collected to date:** $1,885,000 (2027) + $2,600,000 (2028) = $4,485,000 - **Accounts receivable:** $4,672,000 - $4,485,000 = $187,000 - **CIP in excess of billings:** $6,400,000 (revenue recognized) - $4,672,000 (billings) = $1,728,000 **Explanation:** We update totals for revenue, billings, and collections. Calculate contract asset or liability and accounts receivable as above. --- # **Final Answers** ### **Partial Balance Sheet Items:** | Year | Accounts Receivable | CIP in Excess of Billings (Contract Asset) | |------|---------------------|-------------------------------------------| | 2027 | $285,000 | $630,000 | | 2028 | $187,000 | $1,728,000 |