Question

Question 17 The board of directors of Splish Construction Company is meeting to choose between the completed-contract method and the percentage of completion method of accounting for long- term contracts in the company's financial statements. You have been engaged to assist Splish's controller in the preparation of a presentation to be given at the board meeting. The controller provides you with the following information: 1. Splish commenced doing business on January 1, 2021. 2. Construction activities for the year ended December 31, 2021, were as follows: Project Total Contract Billings Through Price 12/31/21 $ 512,000 $ 352,000 732,000 222,000 481,000 487.000 206,000 112,000 462,000 412,000 $2,393,000 $1,585,000 Cash Collections Through 12/31/21 $ 322,000 222,000 402,000 71,000 412,000 $1,429,000 Contract Costs Estimated Incurred Through Additional Costs to 12/31/21 Complete Contracts $ 436,000 $ 113,000 213,000 497,000 362,000 135,000 109,000 332,000 83,000 $1,478,000 $802,000 3. Each contract is with a different customer 4. Any work remaining to be done on the contracts is expected to be completed in 2022. Compute the amount of income (or loss) before selling, general, and administrative expenses for the year ended December 31, 2021, which would be reported under: (1) The completed-contract method. (2) The percentage-of-completion method (based on estimated costs). s

Answer 1

1
Projects	A	B	C	D	E
Contract price (1)	512,000	723,000	481,000	206,000	462,000
Contract costs incurred	436,000	213,000	362,000	135,000	332,000
Additional Costs to complete	113,000	497,000	0	109,000	83,000
Total cost (2)	549,000	710,000	362,000	244,000	415,000
Total gross profit or (loss) (1-2)	-37,000	13,000	119,000	-38,000	47,000
a)
Project A	-37,000
Project B	0
Project C	119,000
Project D	-38,000
Project E	0
	44,000
b)
Project A	-37,000
Project B (13000*123000/710000)	2,252
Project C	119,000
Project D	-38,000
Project E (47000*332000/415000)	37,600
	83,852
2
Accounts title and Explanation	Debit ($)	Credit ($)
Construction in Process	2,252
Construction Expenses	213,000
Revenue from Long-term Contracts		215,252
3
Particulars	Amount ($)
Billings	13,000
Cash collections	71,000
Accounts receivable	58,000
Billings on Construction in Process	13,000
Costs incurred	135,000
Loss reported	-38,000
Construction in process	97,000
4
The account balances would be the same.