Question

Whispering Construction Company has entered into a contract beginning January 1, 2020, to build a parking complex. It has been estimated that the complex will cost $599,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $905,000. The following data pertain to the construction period.

		2020		2021		2022
Costs to date		$257,570		$413,310		$609,000
Estimated costs to complete		341,430		185,690		–0–
Progress billings to date		270,000		551,000		905,000
Cash collected to date		240,000		501,000		905,000

(a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period. (If answer is 0, please enter 0. Do not leave any fields blank.)

Gross profit recognized in 2020		$
Gross profit recognized in 2021		$
Gross profit recognized in 2022		$

(b) Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period. (If answer is 0, please enter 0. Do not leave any fields blank.)

Gross profit recognized in 2020		$
Gross profit recognized in 2021		$
Gross profit recognized in 2022		$

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Answer 1

Solution a:

Computation of % of completion, revenue recognition and Gross Profit - Whispering Construction Company
Year	Actual cost incurred (A)	Total cost incurred till date (B)	Total estimated Cost ( C )	% of completion (D) (B/C)	Contract Price (E)	Total Revenue to be recoganized (F) (E * D)	Revenue for current period (G)	Gross Profit (H) (G - A)
2020	$257,570	$257,570	$599,000	43.00%	$905,000	$389,150	$389,150	$131,580
2021	$155,740	$413,310	$599,000	69.00%	$905,000	$624,450	$235,300	$79,560
2022	$195,690	$609,000	$609,000	100.00%	$905,000	$905,000	$280,550	$84,860

Solution b:

Computation of Gross Profit - Revenue on completion - Whispering Construction Company
Year	Actual cost incurred (A)	Total cost incurred till date (B)	Total estimated Cost ( C )	Contract Price (D)	Gross Profit
2020	$257,570	$257,570	$599,000	$905,000	$0
2021	$155,740	$413,310	$599,000	$905,000	$0
2022	$195,690	$609,000	$609,000	$905,000	$296,000