Problem 18A-12 Profit / (Loss) recognized 2014: 2015: 2016: Using the completed-
ID: 2518017 • Letter: P
Question
Problem 18A-12
Profit / (Loss) recognized 2014:
2015:
2016:
Using the completed-contract method, compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2014, 2015, and 2016. (Ignore income taxes.) (Enter loss amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Profit / (Loss) recognized 2014:
2015:
2016:
Problem 18A-12
On July 1, 2014, Torvill Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of $1,634,000. On July 1, Torvill estimated that it would take between 2 and 3 years to complete the building. On December 31, 2016, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Gumbel for 2014, 2015, and 2016.At 12/31/14 At 12/31/15 At 12/31/16 Contract costs incurred to date $258,000 $1,032,000 $1,806,000 Estimated costs to complete the contract 1,032,000 688,000 –0– Billings to Gumbel 258,000 946,000 1,591,000
Explanation / Answer
Persentage of complitation method
Revenue = total revenue * % of complitation cost (cost incurred till year end / total cost)
Total cost = total cost incurred + estimate future cost
Year 2014
%of complitation = 258,000/1,032,000 = 25 %
Revenue 1,634,000 *25% = 408,500
Profit = 408500-258000 = 150,500
Year 2015
% complete = 1032000/1720000
Revenue 1,634,000 * 60% = 980400
Loss = 980400 - 1032000 = (51,600)
Year 2016
Loss to be recognized = 172000 - 51600 = (120400)
Under completed contrect method :
Year 2014 - No profit and loss will be booked i.e. $0
Year 2015 - No profit and loss will be booked i.e. $0
Year 2016 Total loss will be booked = 1634000-1806000 = (172000)