On July 1, 2017, Torvill Construction Company Inc. contracted to build an office

Question

On July 1, 2017, Torvill Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of $1,900,000. On July 1, Torvill estimated that it would take between 2 and 3 years to complete the building. On December 31, 2019, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Gumbel for 2017, 2018, and 2019. At 12/31/17 At 12/31/18 At 12/31/19 Contract costs incurred to date $300,000 $1,200,000 $2,100,000 Estimated costs to complete the contract 1,200,000 800,000 -0- Billings to Gumbel 300,000 1,100,000 1,850,000 Instructions (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 ended December 31, 2017, 2018, and 2019. (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 ended December 31, 2017, 2018, and 2019. (Ignore income taxes.)

Explanation / Answer

Percentage completion method 2017 2018 2019 Cost incurred in till previous year 0 300000 1200000 ADD Cost incurred during the year 300000 900000 900000 Total cost incurred till date 300000 1200000 2100000 ADD Estimated cost to be incurred 1200000 800000 0 Total estimated cost to be incurred 1500000 2000000 2100000 Percentage of completion (A) 20% 60.00% 100% (cost incurred till date /total estimated cost ) Total revenue (B) 1900000 1900000 1900000 Total revenue recognized (A *B) 380000 1140000 1900000 Less Revenue recognized in previous year 0 380000 1140000 revenue recognized in current year 380000 760000 760000 2017 2018 2019 Revenue 380000 760000 760000 Less Cost incurred 300000 900000 900000 Gross profit 80000 -140000 -140000 b) Completed contracts 2017 2018 2019 Revenue 0 0 1900000 Less Cost incurred 300000 900000 900000 Gross profit -300000 -900000 1000000

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