Question

During 2020, Ivanhoe Company started a construction job with a contract price of $1,590,000. The job was completed in 2022. The following information is available. 2020 2021 2022 Costs incurred to date $396,000 $806,600 $1,080,000 Estimated costs to complete 594,000 283,400 -0- Billings to date 301,000 268,000 892,000 816,000 1,590,000 1,427,000 Collections to date Compute the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used. Gross profit recognized in 2020 $ Gross profit recognized in 2021 $ Gross profit recognized in 2022 $

Answer 1

Answer with working notes is given below

Gross Profit recognised in 2020 Gross Profit recognised in 2021 Gross Profit recognised in 2022 $240,000 $130,000 $140,000 2020 2022 $1,080,000 A Cost Incurred YTD Estimated cost to complete as of year end Total Cost % of Completion $396,000 $594,000 $990,000 40.00% 2021 2021 $806,600 $283,400 $1,090,000 74.00% $1,080,000 B 100.00% A/B 2021 2022 2020 $636,000 $1,176,600 $1,590,000 Revenue Recognised - % of completion Less: Revenue recognised in earlier year Revenue recognised in current period $0 $636,000 $636,000 $540,600 $1,176,600 $413,400A Less: Cost incurred during the year Gross profit (Loss) during the year $396,000 $240,000 $410,600 $130,000 $273,400 B $140,000 A-B Cost incurred during the year = Total YTD Cost - Cost of previous years Credit Debit $410,600 $410,600 $591,000 (892,000-301000) $591,000 title Account title Construction In process To Materials, Cash, payables (To record cost of construction) Accounts Receivable To Billings on Construction (To record the progress billings) Cash To Accounts Receivable (To record collections) Construction expense Construction In process To Revenue from long term contacts (To recognise revenue) $548,000 (816,000-268000) $548,000 (806600-396000) $410,600 $130,000 $540,600 (1176600-636000) 2020 2021 $0 2022 $510,000 Gross profit $0 Under completed contract method Gross profit is recognised on completion of contract in 2022 Contact price Total cost of contract Gross profit $1,590,000 $1,080,000 $510,000