Question

Problem 18-11 Your answer is partially correct. Try again. On July 1, 2020, Cullumber Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of $1,920,000. On July 1, Cullumber 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 Gumbel for 2020, 2021, and 2022. At Contract costs incurred to date Estimated costs to complete the contract Billings to Gumbel 12/31/20 $270,000 1,230,000 300,000 At 12/31/21 $1,272,600 747,400 1,110,000 At 12/31/22 $2,121,000 -0- 1,880,000 (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.) (If answer is 0, please enter 0. Do not leave any field blank. If an amount should be deducted then enter the amount using either a negative sign prececeding the number e.g. -45 or parenthesis e.g. (45).)

Answer 1

(a)

Description	12/31/20	12/31/21	12/31/22
Contract price	$     19,20,000	$     19,20,000	$     19,20,000
Costs incurred to date	$       2,70,000	$     12,72,600	$     21,21,000
Estimated costs to complete	$     12,30,000	$       7,47,400	$                  -
Estimated total costs	$     15,00,000	$     20,20,000	$     21,21,000
Estimated Gross profit	$       4,20,000	$ (1,00,000)	$ (2,01,000)
Percentage completed( Costs incurred to date/Estimated total costs)	18%	63%	100%
Cumulative gross profit (Estimated gross profit*cost to date/estimated total costs)	$          75,600	$         -63,000	$      -2,01,000
Gross profit	$          75,600	$      -1,38,600	$      -1,38,000

2021
Costs incurred to date	$12,72,600
Estimated costs to complete	$ 7,47,400
Estimated total costs	$20,20,000
Contract price	$19,20,000
Total profit/loss	$        -63,000
Gross Profit recognised in 2020	$          75,600
Gross Profit recognised in 2021	$     -1,38,600

2022
Costs incurred to date	$21,21,000
Estimated costs to complete	$             -
Estimated total costs	$21,21,000
Contract price	$19,20,000
Total profit/loss	$     -2,01,000
Profit/(Loss) recognised in 2021	$     -1,38,600
Gross Profit/(Loss) recognised in 2020	$          75,600
Profit/(Loss) recognised in 2022	$     -1,38,000

(b)

Under completed contract method revenue and expenses are recognized at the end of the contract. Expenses incurred are recorded as construction in progress and progressive billings are recorded as liability.

Description	12/31/20	12/31/21	12/31/22
Costs incurred to date	$       2,70,000	$     12,72,600	$     21,21,000
Contract price	$     19,20,000	$     19,20,000	$     19,20,000
Revenue	-	-	$     19,20,000
Expense	-	-	$     21,21,000
Total profit/(loss) on contract	-	-	$      -2,01,000