Question

On February 1, 2020, Marsh Contractors agreed to construct a building at a contract price of $17,400,000. Marsh estimated total construction costs would be $12,000,000 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 $4,500,000 $7,920,000 $13,800,000 Estimated costs to complete 7,500,000 5,280,000 -0- Customer billings to date 6,600,000 12,000,000 16,800,000 Collections to date 6,000,000 10,500,000 16,500,000 Required: For percentage-of-completion accounting and for completed-contract accounting, compute the gross profit that should be recorded for 2020, 2021, and 2022. Be sure to show your computations in the answer box and to fill in the correct amounts on a schedule similar to the one below. It is important that you show not only your answers but also your computations!

Answer 1

Check the explanation

Step-by-step explanation:

Contract price = 17,400,000

Gross profit under percentage of completion method =

[(costs incurred to date / estimated total costs) * estimated profit] - previously recognized profit

Gross profit in 2017 =

[4,500,000 / 12,000,000(4,500,000 + 7,500,000) * 5,400,000(17,400,000 - 12,000,000)] = 2,025,000

Gross profit in 2018 =

[7,920,000 / 13,200,000(7,920,000 + 5,280,000) * 4,200,000(17,400,000 - 13,200,000)] - 2,025,0000 = 495,000

Gross profit in 2019 =

[13,800,000 / 13,800,000 * 3,600,000] - 2,025,000 - 495,000 = 1,080,000

Under the completed contract method Gross profit is recognized only in the year of completion.

Gross profit in 2017 = 0

Gross profit in 2018 = 0

Gross profit in 2019 = 17,400,000 - 13,800,000 = 3,600,000