Question

On February 1, 2013, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,000,000. During 2013, costs of $2,000,000 were incurred with estimated costs of $4,000,000 yet to be incurred. Billings of $2,500,000 were sent and cash collected was $2,250,000 In 2014, costs incurred were $2,500,000 with remaining costs estimated to be $3,600,000. 2014 billings were $2,750,000 and $2,475,000 cash was collected. The project was completed in 2015 after additional costs of $3,800,000 were incurred. The company's fiscal year-end is December 31. Arrow uses the percentage-of-completion method Required 1. Calculate the amount of gross profit or loss to be recognized in each of the three years. (Do not round intermediate calculations and round your final answers to the nearest dollar amount. Loss amounts should be indicated with a minus sign. Gross Profit (Loss) 2013 2014 2015 $666,667O $-766,667 $ 200,000

why the gross profit of 2014 is -766667

Answer 1

	2013	2014	2015
Actual costs to date	2000000	4500000	8300000
Estimated costs to complete	4000000	3600000	0
Total costs to complete	6000000	8100000	8300000
Estimated gross profit for the project	2000000	-100000	-300000
Percentage of completion	33.33%	55.56%	100.00%
Gross profit to date	666667	-100000	-100000
Gross profit recognized in prior years	0	666667	0
GP to be recognized during the year	666667	-766667	-100000
Explanation:
Losses are to be recognized in full; they are not to be prorated according to the %
of completion. As the loss to date as at the end of 2014 was $100000, the GP
accounted earlier has also to be withdrawn. Hence, loss for the year to be
reccognized = 100000+666667 = 766667
That is GP = -$766,667