FA7 Problem: Long Term Contracts – Olcheski

FA7 Problem: Long Term Contracts – Olcheski

The Olcheski Submarine Company signed a $800 million contract to build a nuclear submarinefor the Canadian navy. Work on the contract started in 20x2 and is expected to end in 20x6.Financial data on the contract for the first four years is as follows (all data in millions):

20x220x320x4 20x5

Costs incurred during year $100$150$250 $200Expected costs to complete 600500280 150Billings 70140260 150Collections 40150240 160 

 Required – 

a. For the year 20x2, prepare all journal entries relating to the contract. How would thecontract be presented on the balance sheet at the end of 20x2? b. For the years 20x3 through 20x5, calculate the gross profit or loss that will be recordedon the contract each year