Question

*

(Long-Term Contract with an Overall Loss)

On June 1, 2020, Roman Construction Company Inc. contracted to build an office building for Sicily Corp. for a total contract price of $2,600,000. On July 1, Roman estimated that it would take between 2 and 3 years to complete the building. On December 31, 2022, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Sicily 2020, 2021, and 2022:

At

At

At

12/31/20

12/31/21

12/31/22

Contract costs incurred to date

$ 600,000 (2020)

$1,500,000 (2021)

$2,750,000 (2022)

Estimated costs to complete the contract

1,800,000 (2020)

1,200,000 (2021)

-0- (2022)

Billings to Sicily

400,000

1,200,000

2,400,000

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 income taxes.)

Answer 1

Price	26,00,000.00	26,00,000.00	26,00,000.00
	2020	2021	2021
Cost to date	6,00,000	15,00,000	27,50,000
Estimated cost to complete	18,00,000.00	12,00,000.00	-
Progress billing to date	4,00,000.00	12,00,000.00	24,00,000.00
Estimated total cost	24,00,000.00	27,00,000.00	27,50,000.00
Estimated gross profit	2,00,000.00	-1,00,000.00	-1,50,000.00
a) Percentage of completion		Caln
Gross Profit recognized in 2020	50,000	(600000/2400000*200000)
Loss recognized in 2021	-1,05,556	(1500000/2700000*-100000)-50000
Loss recognized in 2022	-94,444	-150000-50000+105555.56
b) Completed contract method
Gross Profit recognized in 2017	0
Gross Profit recognized in 2018	0
Loss Profit recognized in 2019	-1,50,000

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