Question

(Recognition of Profit and Balance Sheet Amounts for Long-Term Contracts)
Yanmei Construction Company began operations January 1, 2012. During the year, Yanmei Construction entered into a contract with Lundquist Corp. to construct amanufacturing facility. At that time, Yanmei estimated that it would take 5 years to complete the facility at a total cost of $4,500,000. The total contract pricefor construction of the facility is $8,520,000. During the year, Yanmei incurred $1,683,836 in construction costs related to the construction project. Theestimated cost to complete the contract is $5,969,964. Lundquist Corp. was billed and paid 30% of the contract price.

Prepare schedules to compute the amount of gross profit to be recognized for the year ended December 31, 2012, and the amount to be shown as "cost and recognizedprofit on uncompleted contract in excess of related billings" or "billings on uncompleted contract in excess of related costs and recognized profit" at December31, 2012, under each of the following methods. (If answer is zero, please enter 0, do not leave any fields blank. For negative numbers use either a negative signpreceding the number, e.g. -45 or parenthesis, e.g. (45).)

a)completed-contract method

b) percentage of completion method

Answer 1

EXERCISE 18-17 (a) Computation of Gross Profit to Be Recognized under Completed- Contract Method. No computation necessary. No gross profit to be recognized prior to completion of contract. Computation of Billings on Uncompleted Contract in Excess of Related Costs under Completed-Contract Method. Construction costs incurred during the year...................... $ 1,185,800 Partial billings on contract (25% X $6,000,000) .................. (1,500,000) $ (314,200) 18-28 Copyright