Question

1. On March 1, 2019 Tara’s Treasures contracted to construct a jewelry warehouse for a total contract price of The warehouse was completed in April 2021. The yearly contract costs (actual), remaining estimated costs to complete the building and accumulated billings to the builder, Gillian’s Gems for 2019, 2020 & 2021: Contract Price: $6,000,000. 2019 2020 2021 Actual Contract Costs incurred ` $4,357,500 $3,112,500 $3,735,000 Est Cost to Finish $5,976,000 $4,108,500 Progress Billings $1,556,250 $5,316,150 $5,577,600 REQUIRED: a. Using the PERCENTAGE-of-COMPLETION Method, prepare schedules to complete the PROFIT &/ or LOSS as a result of this contract for 2019, 2020 & 2021. (Ignore Income Taxes) b. Using the COMPLETED CONTRACT Method, Prepare SCHEDULES to compute the Profit &/or Loss to be recognized as a result of this contract for the years 2019, 2020, & 2021. (Ignore Income Taxes)

Answer 1

COMPLETE CONTRACT

Then 2021:

12,450,000 revenue

11,205,000 cost

1,245,000 gain

PERCENTAGE OF COMPLETION

`\left[\begin{array}{cccc}year&Revenue&Cost&Income(loss)\\$2019&5,250,000&4,357,500&892,500\\$2020&3,103,448.28&3,112,500&(9051.72)\\$2021&4,096,551.72&3,735,000&361,551.72\\Total&12,450,000&11,205,000&1,245,000\\\end{array}\right]`

Step-by-step explanation:

Billing Cost

1,556,250.00 4,357,500.00

5,316,150.00 3,112,500.00

5,577,600.00 3,735,000.00

12,450,000.00 11,205,000.00

Net 12,450,000 - 11,205,000 = 1,245,000.00

Complete contract will differ the entire of revenues and expenses upon completion Thus 2019 and 2020 will have zero revenues and expenses related to this construction

Then 2021:

12,450,000 revenue

11,205,000 cost

1,245,000 gain

PERCENTAGE OF COMPLETION

We have to weight each yar base on how much advance as been made:

Cost Incurrent Esrtimate to completion Weight

2019 4357500 5976000 0.421686747*

2020 3112500 4108500 0.431034483**

*4357500 / (4357500 + 5976000)

**3112500 / (3112500 + 4108500)

Then we allply this weight to the carrying revenue to know the amount to recognize

Beginning Weight accrued Revenue Carrying

2019 12,450,000 0.421686747 5,250,000.00 7,200,000.00

2020 7,200,000 0.431034483 3,103,448.28 4,096,551.72

The last year will recognize the entire of the carrying revenue