Problem 18-9 Flounder Construction Company has entered into a contract beginning

Question

Problem 18-9 Flounder Construction Company has entered into a contract beginning January 1, 2017, to build a parking complex. It has been estimated that the complex will cost s594,000 and will take 3 years to costruct. The complex will be biled to the purchasing compeny at $896,000, The following data pertain to the construction period. 2017 Costs to date $267,300 $43,320 $Se,0D0 Progress billings to date Cash collected to date 326,TO0 130,690 268,000 547 OD96,000 238,000 OD6,000 o, ples using the pere tage or compie on method, compute the estimated gross pro t that would be recognized during each year of the Gross profit recognized in 2017 Gross profit recugnized in 2019 s Gross profit recognized in 2019s (b) using the Gross profit recngnized in 2017s Gross proft recrgnized in 2018s Gross profit recrgnized in 2019 s a onstruction period. Ifans eris ease entero. Do not leave any fields b ank ) completed-contract method,compute the estimated gross profit that woulc be recegnized during each year of the construction period. (If answer is O, please enter O. Do not Jeave any fields blank. od (t answer is o, please enter a. Do Question Attempts: O of 5 usd SAVE FOR LATER

Explanation / Answer

Answer:

(a) Percentage-of-completion method:

b. Completed contract method:

Under this method, revenue is recognized only when the contract is completed or substantially completed. In this case, the total revenue of $896,000 will be recognized along with the total costs of $606,000 in 2019 as the contract is completed in this year. Hence the gross profit of 2017 and 2018 will be Nil whereas the entire gross profit of $290,000 will be booked in 2019.

In $ 2017 2018 2019 a. Costs to date        267,300        463,320        606,000 b. Estimated costs to complete        326,700        130,680                   -   c. Total Estimated Costs for the Contract (a+b)        594,000        594,000        606,000 d. Percentage of Work Completed (a/c) *100 45% 78% 100% e. Revenue recognized ($896,000 *d)        403,200        698,880        896,000 f. Gross Profit (e - a) (accumulated)        135,900        235,560        290,000 Gross profit for 2017        135,900 Gross profit for 2018 (235,560 - 135,900)           99,660 Gross profit for 2019 (290,000 - 235,560)           54,440

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