Question

Bigelow Contractors signed a contract to construct a storage facility for RGN manufacturing, Inc. The fixed-fee contract specifies that the facility is to be completed in three years. Bigelow uses the percentage-of-completion method (cost-to-cost approach) to account for its construction transactions. Information related to this contract is summarized in the following table.

Contract price	$ 2,000,000
	2018	2019	2020
Actual construction costs incurred during the year	$ 900,000	$ 300,000	$ 600,000
Construction costs incurred in prior years	0	900,000	1,200,000
Cumulative construction costs incurred to date	900,000	1,200,000	1,800,000
Estimated costs to complete	600,000	400,000	0
Estimated total costs	1,500,000	1,600,000	1,800,000
Progress billings made during the year	700,000	700,000	600,000
Cash collections during the year	400,000	800,000	800,000

Assume that Bigelow's total assets were $5,000,000 and its liabilities were $2,000,000 at the beginning of the year.

b. Compute the total assets, liabilities, and equity under the percentage-of-completion and completed contract methods at the end of each year.

Can someone help with Part B, the question is already answered, but does not explain how to get the total assets.

thanks in advance.

Answer 1

Ans :-

Under Percentage of completion method the recognition of revenue and cost taking into account the stage of completion of a contract. Under this method, revenue and cost are recognized in the statement of profit and loss in the accounting periods in which the work is performed. IV

Please find Balance sheet and P/L which will provide all requirements.

BALANCE SHEET (2018)
EQUITY	31,75,000	ASSETS	50,00,000
LIABILITY	20,00,000	STOCK	3,75,000
CREDITORS	5,00,000	DEBTORS	3,00,000
	56,75,000		56,75,000
BALANCE SHEET (2019)
EQUITY	34,55,000	ASSETS	56,75,000
LIABILITY	25,00,000	STOCK	80,000
CREDITORS	-	DEBTORS	2,00,000
	59,55,000		59,55,000
BALANCE SHEET (2020)
EQUITY	33,75,000	ASSETS	58,75,000
LIABILITY	25,00,000	CASH	-
CREDITORS	-	DEBTORS	-
	58,75,000		58,75,000

Profit and Loss A/c (2018)
Expenses (35%)	9,00,000	Sales (35%)	7,00,000
Profit	1,75,000	Closing stock	3,75,000
	10,75,000		10,75,000
Note:-
Estimated completion cost			15,00,000
Cost of work done (35%)			5,25,000
Actual cost incurred			9,00,000
Closing stock			3,75,000
Profit and Loss A/c (2019)
Opening Stock	3,75,000	Sales	7,00,000
Expenses	3,00,000	Closing stock	80,000
Profit	1,05,000
	7,80,000		7,80,000
Note:-
Estimated completion cost			16,00,000
Cost of work done (70%)			11,20,000
Actual cost incurred			12,00,000
Closing stock			80,000
Profit and Loss A/c (2020)
Opening Stock	80,000	Sales	6,00,000
Expenses	600000	Closing stock
Profit	-80,000
	6,00,000		6,00,000
Note:-
Estimated completion cost			18,00,000
Cost of work done (100%)			18,00,000
Actual cost incurred			18,00,000
Closing stock			-