Question

On February 1, 2020, Nash's Contractors agreed to construct a building at a contract price of $5,700,000. Nash's estimated total construction costs would be $3,920,000 and the project would be finished in 2022. Information relating to the costs and billings for this contract is as follows:

2020 2021 2022
Total costs incurred to date $1,470,000 $2,580,000 $4,550,000
Estimated costs to complete 2,450,000 1,720,000 -0-
Customer billings to date 2,100,000 3,920,000 5,500,000
Collections to date 1,900,000 3,400,000 5,400,000

Fill in the correct amounts on the following schedule. For percentage-of-completion accounting and for completed-contract accounting, show the gross profit that should be recorded for 2020, 2021, and 2022.

2020 $________ 2020 $________
2021 $________ 2021 $________
2022 $________ 2022 $________

Answer 1

To calculate the gross profit for each year using the percentage-of-completion accounting method, divide the total costs incurred to date by the estimated total costs. Then, multiply the percentage of completion by the contract price to calculate the gross profit for each year.

Step-by-step explanation:

To calculate the gross profit for each year using the percentage-of-completion accounting method, we need to determine the percentage of the project completed in each year. We can do this by dividing the total costs incurred to date by the estimated total costs for the entire project. Here are the calculations for each year:

1. 2020: $1,470,000 / ($1,470,000 + $2,450,000) = 37.5%
2. 2021: $2,580,000 / ($2,580,000 + $1,720,000) = 60%
3. 2022: $4,550,000 / ($4,550,000 + $0) = 100%

The gross profit for each year can then be calculated by multiplying the percentage of completion by the contract price:

1. 2020: 37.5% * $5,700,000 = $2,137,500
2. 2021: 60% * $5,700,000 = $3,420,000
3. 2022: 100% * $5,700,000 = $5,700,000

Answer 2

Nash's Contractor

Gross profit that should be recorded for 2020, 2021, and 2022:

Percentage -of completion Completed-contract

2020 $___667,500_____ 2020 $___0_____

2021 $____361,395____ 2021 $____0____

2022 $____121,105____ 2022 $____1,150,000____

Step-by-step explanation:

a) Data and Calculations:

Contract price = $5,700,000

Estimated construction costs = $3,920,000

Project completion date = 2022

Costs and Billings:

2020 2021 2022

Total costs incurred to date $1,470,000 $2,580,000 $4,550,000

Estimated costs to complete 2,450,000 1,720,000 -0-

Customer billings to date 2,100,000 3,920,000 5,500,000

Collections to date 1,900,000 3,400,000 5,400,000

Percentage of completion:

2020:

Revenue = $2,137,500 ($1,470,000/$3,920,000 * $5,700,000)

Cost incurred = 1,470,000

Gross profit = $667,500

2021:

Revenue = $1,471,395 ($1,110,000/$4,300,000 * $5,700,000)

Cost incurred = 1,110,000

Gross profit = $361,395

2022:

Revenue = $2,091,105 ($5,700,000 - $2,137,500 - $1,471,395)

Cost incurred 1,970,000

Gross profit = $121,105

Completed contract

2022: Revenue = $5,700,000

Total costs = 4,550,000

Gross profit = $1,150,000