Question

Shanahan Construction Company has entered into a contract beginning January 1, 2017, to build a parking complex. It is estimated that the complex will take 3 years to construct. Additional information follows. Estimated cost of complex Contract price AA 600,000 900,000 The following data pertain to the construction period. 2019 610,000 $ 6100 A 2017 270,000 330,000 270,000 240,000 2018 450,000 150,000 550,000 500,000 Costs to date Estimated costs to complete Progress billings to date Cash collected to date $ A A A A 900,000 900,000 A Instructions: When there is no applicable answer figure for an item, you must enter 0. (a) Using the percentage-of-completion method, compute the estimated gross profit to be recognized during each year of the construction period. 2017 2018 2019 Contract price Estimated total cost Estimated total gross profit

Answer 1

(a)

Description	2017	2018	2019
Contract price	$        9,00,000	$        9,00,000	$        9,00,000
Costs to date	$        2,70,000	$        4,50,000	$        6,10,000
Estimated costs to complete	$        3,30,000	$        1,50,000
Estimated total costs	$        6,00,000	$        6,00,000	$        6,10,000
Estimated gross profit	$        3,00,000	$        3,00,000	$        2,90,000

2017
Gross profit for 2017
	Costs to date	x	Estimated total gross profit
	Estimated total costs
	=270000/600000*300000
Gross profit	$ 1,35,000
2018
Gross profit for 2018
	Costs to date	x	Estimated total gross profit	-	Gross profit recognized until the end of the previous year
	Estimated total costs
	=(450000/600000)	x	300000	-	135000
Gross profit	$ 90,000
2019
Gross profit for 2019
	Costs to date	x	Estimated total gross profit	-	Gross profit recognized until the end of the previous year
	Estimated total costs
	=(610000/610000)	x	290000	-	225000
Gross profit	$ 65,000

(b)

2017	Total Contract price =	0
	Total Contract costs =	0
	Total Gross profit       =	0
2018	Total Contract price =	0
	Total Contract costs =	0
	Total Gross profit       =	0
2019	Total Contract price =	$        9,00,000
	Total Contract costs =	$        6,10,000
	Total Gross profit       =	$        2,90,000