Brady Construction Company contracted to build an apartment complex for a price

Question

Brady Construction Company contracted to build an apartment complex for a price of $6,700,000. Construction began in 2016 and was completed in 2018. The following is a series of independent situations, numbered 1 through 6, involving differing costs for the project. All costs are stated in thousands of dollars. Required: Completed the following table. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar. Negative amounts should be indicated by a minus sign.)

Explanation / Answer

Recognized Profit:

[(Cost incurred so far/ Total expected project costs) * Estimated Profit] - previous years profit

Working for situation 1 is shown and in the same way all other situation amounts are calculated Situation 1 Percentage of completion This method recognizes a portion of the gross profit each year based upon the following formula:

Recognized Profit:

[(Cost incurred so far/ Total expected project costs) * Estimated Profit] - previous years profit

therefore in situation one using the above formula gross profit calculation is as follows: Year 2016 = {[1670000/(1670000+4050000)]* 980000} - 0 = $286119 Year2017 = {[4310000/(4310000+1410000)] * 980000} - 286119 = $452308 Year2018 = {[5720000/(5720000)] * 980000} - 286119 - 452308 = $241573 Completed contract Method This method defers all the profit on the construction project until the completion date. Therefore in Year 2016 & Year 2017 there will be no profit or loss and in the last year 2018 there will be profit of (6700000 - 5720000) = $980000

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