Question

Problem 18-11 On July 1, 2017, Sheffield Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of $1,920,000. On July 1, Sheffield estimated that it would take between 2 and 3 years to complete the building. On December 31, 2019, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Gumbel for 2017, 2018, and 2019. At 12/31/17 $273,600 1,246,400 300,000 Contract costs incurred to date Estimated costs to complete the contract Billings to Gumbel At 12/31/18 $1,171,600 848,400 1,090,000 At 12/31/19 $2,127,600 1,870,000 (a) Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2017, 2018, and 2019. (Ignore income taxes.) (if answer is 0, please enter 0. Do not leave any field blank. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) 2017

Answer 1

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Sheffield Construction Company
Percentage of completion method
Calculation of Gross Profit
Particulars	2017	2018	2019
Contract Price	1,920,000	1,920,000	1,920,000	A
Cost Incurred to date	273,600	1,171,600	2,127,600	B
Cost Incurred during the year	273,600	898,000	956,000	C
(Cost incurred to date of the present year less Cost incurred to date of the previous year)
Estimated cost to complete	1,246,400	84,840	-	D
Estimated total cost	1,520,000	1,256,440	2,127,600	E=C+B
(Cost Incurred to date+ Estimated cost to complete )
Percentage complete	18.00%	93.25%	100.00%	F=B/E
(Cost Incurred to date/Estimated total cost)
Revenue to be recognized	345,600	1,444,754	129,646	G
(Contract Price*Percentage complete)- revenue previously recognized
Year 2017: 18% completed. Revenue recognized = 18% x $ 1,920,000 = $ 345,600.
Year 2018: 93.25% completed. Revenue recognized = 93.25% x $ 1,920,000 – $ 345,600 (previously recognized) = $ 1,444,754.
Year 2019: 100% completed. Revenue recognized = 100% x $ 1,920,000 – $ 345,600- $ 1,444,754 (previously recognized) = $ 129,646.
Gross Profit/(Loss)	72,000	546,754	(826,354)	H=G-C
Completed contract method
Calculation of Gross Profit
Particulars			2019
Contract Price			1,920,000	A
Cost Incurred to date			2,127,600	B
Gross Profit/(Loss)			(207,600)	I=A-B