Question

Crane Construction Inc., which has a calendar year end, has entered into a non-cancellable fixed price contract for $2.9 million beginning September 1, 2020, to build a road for a municipality. It has been estimated that the road construction will be complete by June 2022. The following data pertain to the construction period.

		2020		2021		2022
Costs to date		$848,000		$1,871,250		$2,428,000
Estimated costs to complete		1,802,000		623,750		0
Progress billings to date (non-refundable)		890,000		2,378,000		2,900,000
Cash collected to date		748,000		2,271,000		2,900,000

Using the percentage-of-completion method, calculate the estimated gross profit that would be recognized during each year of the construction period.

2020 2021 2022

Gross profit / (loss) $ $ $

Answer 1

2020

Percentage of completion   = Cost to date * 100

Estmated total cost

=   $848,000 * 100

    $848,000+$1,802,000

= 32%

Revenue to be recognised = $2,900,000 * 32%

= $928,000

2021

Cumulative Percentage of completion   = Cost to date * 100

Estmated total cost

=   $1,871,250 * 100

$1,871,250+$623,750

   = 75 %

Revenue to be recognised = $2,900,000 * (75-32)%

= $1,247,000

Cost incurred = Cost to date - previous year cost

= $1,871,250-$848,000

= $1,023,250

2022

Cumulative Percentage of completion = 100% since project completed.

Revenue to be recognised = Total contract price - Revenue recognised till dsate

= $2,900,000- $928,000 - $1,247,000

= $725,000

Cost incurred = Cost to date - previous year cost

= $2,428,000- $1,871,250

= $556,750

CRANE CONSTRUCTION INC.
STATEMENT OF GROSS PROFIT
	2020	2021	2022	Total
Revenue	$928,000	$1,247,000	$725,000	$2,900,000
Costs	($848,000)	($1,023,250)	($556,750)	($2,428,000)
Gross profit	$80,000	$223,750	$168,250	$472,000