Problem 18-10 On March 1, 2017, Concord Construction Company contracted to const
ID: 2395265 • Letter: P
Question
Problem 18-10 On March 1, 2017, Concord Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,410,000. The building was completed by October 31, 2019. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2017, 2018, and 2019 are given below: 2017 2018 2019 Contract costs incurred during the year Estimated costs to complete the contract at 12/31 Billings to Fabrik during the year $2,648,600 $2,349,400 $2,352,000 3,811,400 2,352,000 0 3,190,000 3,470,000 1,750,000 (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, 2017, 2018, and 2019. (Ignore income taxes.) (If answer is o, please enter O. Do not leave any fields blank.)Explanation / Answer
(a)
YEAR 2017
Costs to date = 2,648,600
Total estimated costs = 2,648,600 + 3,811,400 = 6,460,000
Expected profit = 8,410,000 - 6,460,000 = 1,950,000
Previously recognized profits = 0
Gross profit to be recognized in the year 2017 =
[(costs to date / total estimated costs) * expected profit] - previously recognized profits
= [(2,648,600 / 6,460,000) * 1,950,000] - 0
= 799,500
YEAR 2018
Costs to date = 2,349,400 + 2,648,600 = 4,998,000
Total estimated costs = 4,998,000 + 2,352,000 = 7,350,000
Expected profit = 8,410,000 - 7,350,000 = 1,060,000
Previously recognized profits = 799,500
Gross profit to be recognized in the year 2018 =
[(costs to date / total estimated costs) * expected profit] - previously recognized profits
= [(4,998,000 / 7,350,000) * 1,060,000] - 799,500
= (78,700)
YEAR 2019
Costs to date = 2,352,000 + 2,349,400 + 2,648,600 = 7,350,000
Total estimated costs = 7,350,000
Expected profit = 8,410,000 - 7,350,000 = 1,060,000
Previously recognized profits = 799,500 - 78,700 = 720,800
Gross profit to be recognized in year 2019 =
[(costs to date / total estimated costs) * expected profit] - previously recognized profits
= [(7,350,000 / 7,350,000) * 1,060,000] - 720,800
= 339,200
* Costs to date = Accumulated costs
* Total estimated costs = Costs to date + Estimated costs to complete the contract at 12/31
* Expected profit = Contract price - Total estimated costs
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(b)
Under completed contract methgod, Gross profit is to be recognized only uopn the completion of the contract
Profit recognized in 2019 = Contract price - Total costs
= 8,410,000 - 7,350,000
= 1,060,000