Stoney Run Construction Company (U.S. GAAP) enters into a 3-year contract to bui

Question

Stoney Run Construction Company (U.S. GAAP) enters into a 3-year contract to build a new warehouse facility. Information for Years 1, 2, and 3 is shown below:

2,800,000

PERCENTAGE OF COMPLETION METHOD

Question 6:

1-The balance sheet at the end of Year 2 will show a:

Question 7: answer the following questions

1-what is the gross profit recognized in Year 3?

2-what amount is shown on the balance sheet at the end of Year 3?

3-Assume that total estimated costs are $3,000,000 in Year 2. All other amounts remain the same as above. What is the gross profit recognized in Year 2 under this new assumption?

Year 1 Year 2 Year 3 Sale price $2,800,000 $2,800,000 $2,800,000 Estimated costs 1,600,000 2,000,000 2,000,000 Costs incurred to date (paid in cash) 400,000 900,000 2,000,000 Billed to date 250,000 1,150,000 2,800,000 Received in cash to date 190,000 950,000

2,800,000

Explanation / Answer

Answer:

1 Gross Profit Recognized in year3:

Estimated profit= Sale price - Estimated Cost

= 2800000 - 2000000

= 800000

2. Amount shown on balance sheet will be 2800000 (Received in cash to date)

3. Gross profit recognized in year 2 under new assumption:

Estimated profit= Sale price - Estimated cost

= 2800000 - 3000000

Gross loss = 200000

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