Question

On March 1, 2020, Waterway Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,400,000. The building was completed by October 31, 2022. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2020, 2021, and 2022 are given below:

		2020		2021		2022
Contract costs incurred during the year		$2,700,600		$2,503,700		$2,125,700
Estimated costs to complete the contract at 12/31		3,729,400		2,125,700		–0–
Billings to Fabrik during the year		3,230,000		3,470,000		1,700,000

(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 fields blank. Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

2020
Profit / (Loss) Recognized in 2020Estimated Total CostsCosts IncurredPercent CompleteRevenue RecognizedCosts to date (12/31/20)Estimated Costs to Complete		$
Costs IncurredCosts to date (12/31/20)Revenue RecognizedEstimated Total CostsPercent CompleteEstimated Costs to CompleteProfit / (Loss) Recognized in 2020
Profit / (Loss) Recognized in 2020Revenue RecognizedEstimated Costs to CompleteEstimated Total CostsCosts to date (12/31/20)Percent CompleteCosts Incurred		$
Estimated Total CostsPercent CompleteCosts IncurredEstimated Costs to CompleteProfit / (Loss) Recognized in 2020Costs to date (12/31/20)Revenue Recognized			%
Profit / (Loss) Recognized in 2020Percent CompleteRevenue RecognizedEstimated Total CostsEstimated Costs to CompleteCosts to date (12/31/20)Costs Incurred		$
Revenue RecognizedEstimated Costs to CompleteProfit / (Loss) Recognized in 2020Estimated Total CostsCosts IncurredCosts to date (12/31/20)Percent Complete
Costs to date (12/31/20)Costs IncurredPercent CompleteEstimated Costs to CompleteProfit / (Loss) Recognized in 2020Revenue RecognizedEstimated Total Costs		$

2021
Profit / (Loss) Recognized in 2020Revenue Recognized in 2021Percent CompleteCosts to date (12/31/21)Estimated Total CostsEstimated Costs to CompleteCosts Incurred in 2021		$
Estimated Total CostsCosts to date (12/31/21)Revenue Recognized in 2021Costs Incurred in 2021Estimated Costs to CompleteProfit / (Loss) Recognized in 2020Percent Complete
Profit / (Loss) Recognized in 2020Estimated Total CostsEstimated Costs to CompleteCosts to date (12/31/21)Costs Incurred in 2021Percent CompleteRevenue Recognized in 2021		$
Profit / (Loss) Recognized in 2020Estimated Total CostsEstimated Costs to CompleteCosts Incurred in 2021Revenue Recognized in 2021Costs to date (12/31/21)Percent Complete			%
Costs Incurred in 2021Revenue Recognized in 2021Estimated Costs to CompleteCosts to date (12/31/21)Estimated Total CostsPercent CompleteProfit / (Loss) Recognized in 2020		$
Estimated Costs to CompleteCosts to date (12/31/21)Estimated Total CostsRevenue Recognized in 2021Percent CompleteCosts Incurred in 2021Profit / (Loss) Recognized in 2020
Costs Incurred in 2021Percent CompleteEstimated Total CostsEstimated Costs to CompleteCosts to date (12/31/21)Profit / (Loss) Recognized in 2021Revenue Recognized		$

2022
Profit Previously RecognizedProfit / (Loss) Recognized in 2022Total Revenue RecognizedTotal Costs IncurredTotal Profit on Contract		$
Total Costs IncurredTotal Profit on ContractProfit Previously RecognizedProfit / (Loss) Recognized in 2022Total Revenue Recognized
Total Profit on ContractProfit Previously RecognizedProfit / (Loss) Recognized in 2022Total Revenue RecognizedTotal Costs Incurred
AddLess:                                                           Total Profit on ContractTotal Costs IncurredProfit Previously RecognizedProfit / (Loss) Recognized in 2022Total Revenue Recognized
Total Costs IncurredProfit Previously RecognizedTotal Revenue RecognizedTotal Profit on ContractProfit / (Loss) Recognized in 2022		$

(b) Using the completed-contract 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 fields blank. Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

2020: 2021: 2022:

Answer 1

(a) The percentage of completion method is used for longer-term projects and recognizes revenue and expenses as a percentage of the project’s completion during the period. Computation of Gross profit recognized in different years will be as follows:

Amount in $ 2022 Particulars 2020 2021 A 2,700,600 2,125,700 5,204,300 B Cost incurred during the year Cost incurred during previous year/years Estimated cost still to be incurred Total Cost 2,503,700 2,700,600 2,125,700 7,330,000 с 3,729,400 6,430,000 D=A+B+C 7,330,000 Percentage Completion till date Percentage work already completed till last year Percentage revenue to be considered this year E=(A+B)/D F 42.00% 0 42.00% 71.00% 42.00% 29.00% 100.00% 71.00% 29.00% G=E-F Revenue $ 3,528,000 H=8400000"G (8,400,000*42%) $ 2,700,600 827,400 2,436,000 (8,400,000*29%) 2,503,700 (67,700) 2,436,000 (8,400,000*29%) 2,125,700 310,300 Expenses Gross Profit/(Loss)

2. The completed contract method is an method that postpones the reporting of income and expenses, till a contract is completed. Hence, all the profit of the contract will be recognized in the year in which it is completed:

Hence, all the revenue will be recognized in the Year 2022.

Gross Profit to be recognized in Year 2022 = Total Revenue - Total Expenses

Gross Profit to be recognized in Year 2022 = $8,400,000 - ($2,700,600 + $2,503,700 + $2,125,700) = $1,070,000

Gross Profit to be recognized in Year 2020 & 2021 = 0