Problem 18B-10 On March 1, 2017, Monty Construction Company contracted to constr
ID: 2599534 • Letter: P
Question
Problem 18B-10 On March 1, 2017, Monty Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,390,000. 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 $3,003,300 $2,179,700 $2,117,000 12/31 Billings to Fabrik during the year (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 3,386,700 2,117,000-0 ,240,000 3,460,000 1,690,000 ended December 31, 2017, 2018, and 2019. (Ignore income taxes.) (If answer is o, please enter 0. Do not leave any fields blank.) 2017Explanation / Answer
Answer 1 Percentage of work completed for the year 2017 = Expenditure incurred from inception to date / Total estimated costs for the contract Percentage of work completed till 2017 = $30,03,300 / [$33,03,300 + $33,86,700] = 45.89% Percentage of work completed till 2018 = [$30,03,300+$21,79,700] / [$51,83,000 + $21,17,000] = 71% Percentage of work completed till 2019 = 100% Percentage of work completed in the year 2017 = 45.89% Percentage of work completed in the year 2018 = 71% - 45.89% = 26.11% Percentage of work completed in the year 2019 = 100% - 71% = 29% Revenue recognised in the year = Total Contract value * percentage of work completed during the year Revenue recognised in the year 2017 = $83,90,000 * 45.89% = $37,66,470.40 Revenue recognised in the year 2018 = $83,90,000 * 26.11% = $21,90,429.60 Revenue recognised in the year 2019 = $83,90,000 * 29% = $24,33,100.00 Calculation of profit recognised during the year 2017 2018 2019 Revenue Recognised in the year $3,766,470.40 $2,190,429.60 $2,433,100.00 Less : Cost incurred during the year $3,003,000.00 $2,179,700.00 $2,117,000.00 $7,299,700.00 Profit to be recognised $763,470.40 $10,729.60 $316,100.00 Answer 2 Calculation of profit / loss to be recognised based on completed contract method Under Completed contract method,the revenue is recognized only when the contract is 100% complete. Year Profit / (Loss) recognised 2017 $0 2018 $0 2019 $1,090,300 As the contract is completed in 2019 , the profit is recognised only in this year. Profit recognised in year 2019 = Total Contract value - Total cost incurred = $83,90,000 - $72,99,700 = $10,90,300