Question

(Long-Term Contract with Interim Loss)

On May 1, 2020, Jackson Construction Company contracted to

construct a factory building for a total contract price of $9,600,000. The building was completed by May 31, 2022. The annual

contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2020, 2021, and 2022

are

given below.

2020

2021

2022

Contract costs incurred during the year

$3,400,000

$2,400,000

$2,900,000

Estimated costs to complete the contract at 12/31

4,600,000

3,100,000

-0-

Billings

1,200,000 4,100,000 4,300,000

Instructions

(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, 2020, 2021, and 2022. (Ignore income taxes.)

(b)

Using the completed-contract method, prepare schedules to compute the profit or loss to be recognized as a result of

this contract for the years ended December 31, 2020, 2021, and 2022. (Ignore incomes taxes.)

Answer 1

Price	9600000	9600000	9600000
	2020	2021	2021
Cost to date	3400000	5800000	8700000
Estimated cost to complete	4600000	3100000	0
Progress billing to date	1200000	4100000	4300000
Estimated total cost	80,00,000	89,00,000	87,00,000
Estimated gross profit	16,00,000	7,00,000	9,00,000
a) Percentage of completion		Caln
Gross Profit recognized in 2020	6,80,000	(3400000/8000000*1600000)
Loss recognized in 2021	-2,23,820	(5800000/8900000)*700000-680000
Gross Profit recognized in 2022	443820	(900000-680000+223820)
b) Completed contract method
Gross Profit recognized in 2017	0
Gross Profit recognized in 2018	0
Gross Profit recognized in 2019	9,00,000

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