County over a three-year period (2013 through 2015). The contract price is $1,20
ID: 2379275 • Letter: C
Question
County over a three-year period (2013 through 2015). The contract
price is $1,200,000 and the construction costs (both actual and
estimated) total $705,000 for the three years. The percentage
completed at the end of each year is as follows: 2013, 20%; 2014,
75%; 2015, 100%.
Required
1. Prepare a schedule showing the amount of gross profit that Tarlo
Company recognizes each year using the percentage-of completion
method.
2. Prepare a schedule showing the amount of gross profit that Tarlo
Company recognizes each year using the completed contract
method.
Explanation / Answer
a) The percentage-of-completion method recognizes revenues, costs, and gross profit as progress is made toward
completion on a long-term contract.
b) Under the completed-contract method, revenue and gross profit are recognized only at point of sale, that is, when
the contract is completed. Costs of long-term contracts in process and current billings are accumulated, but there
are no interim charges or credits to income statement accounts for revenues, costs, and gross profit.
Contract Price $ 1,200,000 Construction Costs $ 705,000 Price on % of Completion Method $ 240,000 $ 660,000 $ 300,000 $ 1,200,000 Construction Costs % of Completion $ 141,000 $ 387,750 $ 176,250 $ 705,000 Gross Profit $ 99,000 $ 272,250 $ 123,750 $ 495,000