Question

On February 1, 2017, Marsh Contractors agreed to construct a building at a contract price of $5,720,000. Marsh estimated total construction costs would be $3,936,000 and the project would be finished in 2019. Information relating to the costs and billings for this contract is as follows:

		2017		2018		2019
Total costs incurred to date		$1,476,000		$2,592,000		$4,560,000
Estimated costs to complete		2,460,000		1,728,000		-0-
Customer billings to date		2,120,000		3,936,000		5,520,000
Collections to date		1,920,000		3,420,000		5,420,000

Fill in the correct amounts on the following schedule. For percentage-of-completion accounting and for completed-contract accounting, show the gross profit that should be recorded for 2017, 2018, and 2019.

		Percentage-of-Completion Gross Profit				Completed-Contract Gross Profit
2017		$		2017		$
2018		$		2018		$
2019		$		2019		$

Answer 1

Answer

• Working for Percentage of Completion method

Working		Year end 2017	Year end 2018	Year end 2019
A	Contract Price	$       5,720,000.00	$       5,720,000.00	$          5,720,000.00
B	Cost Incurred to Date	$       1,476,000.00	$       2,592,000.00	$          4,560,000.00
C	Estimated cost yet to be incurred to complete the contract	$       2,460,000.00	$       1,728,000.00	$                                -
D = B+C	Total Cost	$       3,936,000.00	$       4,320,000.00	$          4,560,000.00
E = (B/D) x 100	% of Completion	37.50%	60.00%	100.00%
F = A x E	Revenue to date	$       2,145,000.00	$       3,432,000.00	$          5,720,000.00
G	Revenue of Previous year	$                            -	$       2,145,000.00	$          3,432,000.00
H = F - G	Net Revenue this year	$       2,145,000.00	$       1,287,000.00	$          2,288,000.00
I (=B)	Cost to date	$       1,476,000.00	$       2,592,000.00	$          4,560,000.00
J	Cost to date of previous year	$                            -	$       1,476,000.00	$          2,592,000.00
K = I - J	Net Cost for the year	$       1,476,000.00	$       1,116,000.00	$          1,968,000.00
L = H - K	Gross Profits	$           669,000.00	$          171,000.00	$              320,000.00

• Requirements

		Percentage-of-Completion Gross Profit				Completed-Contract Gross Profit
2017		$ 669000		2017		$0
2018		$ 171000		2018		$ 0
2019		$ 320000		2019		$ 1160000 [$5720000 – 4560000 cost incurred]