Wildhorse Construction Corporation contracted to construct a
building for $7680000. Construction began in 2021 and was completed
in 2022. Data relating to the contract are summarized
below:
Year ended December 31, |
||
2021 | 2022 | |
Costs incurred | $3135000 | $2340000 |
Estimated costs to complete | 2090000 | 0 |
Wildhorse uses the percentage-of-completion method as the basis for
income recognition. For the years ended December 31, 2021, and
2022, respectively, Wildhorse should report gross profit of
$1323000 and $882000. |
$4545000 and $3135000. |
$1473000 and $732000. |
$0 and $2340000. |
Answer: $1,473,000 and $732,000
Calculations:
2021 | ||
Contract price | $7,680,000 | |
(Less): Estimated cost: | ||
Cost to date | $3,135,000 | |
Estimated costs to complete | $2,090,000 | |
Total estimated costs | $5,225,000 | |
Estimated gross profit | $2,455,000 | |
x Percent completed [(3,135,000/5,225,000) x 100] | 60% | |
= Gross profit recognized for 2021 | $1,473,000 | |
2022 | ||
Contract price | $7,680,000 | |
(Less): Estimated cost: | ||
Cost to date [$3,135,000+2,340,000] | $5,475,000 | |
Estimated costs to complete | - | |
Total costs | $5,475,000 | |
Total gross profit | $2,205,000 | |
(less): Gross profit recognized in 2021 | ($1,473,000) | |
= Gross profit recognized for 2022 | $732,000 | |
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