Ivanhoe Construction Company has entered into a contract beginning January 1, 20
ID: 2343132 • Letter: I
Question
Ivanhoe Construction Company has entered into a contract beginning January 1, 2017, to build a parking complex. It has been estimated that the complex will cost $605,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $909,000. The following data pertain to the construction period.
2017
2018
2019
(a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period. (If answer is 0, please enter 0. Do not leave any fields blank.)
(b) Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period. (If answer is 0, please enter 0. Do not leave any fields blank.)
2017
2018
2019
Costs to date $254,100 $496,100 $614,000 Estimated costs to complete 350,900 108,900 –0– Progress billings to date 272,000 550,000 909,000 Cash collected to date 242,000 500,000 909,000Explanation / Answer
Solution:
Answer (a): Using the percentage-of-completion method the estimated gross profit that would be recognized during each year of the construction period:
Answer (b): Using the completed-contract method, the estimated gross profit that would be recognized during each year of the construction period:
$295,000
(909,000 - 614,000)
Gross profit recognised 2017 2018 2019 Costs to date (A) $272,000 $496,100 $614,000 Estimated cost to complete (B) $350,900 $108,900 $0 Total estimated cost to complete C = (A+B) $622,900 $605,000 $614,000 Percentage of completion D = A / C 43.66% 82.00% 100.00% Total contract value (E) $909,000 $909,000 $909,000 Revenue to be recognised till date F = D*E $396,869 $745,380 $909,000 Gross profit till date = F - A $124,869 $249,280 $295,000 Gross profit for the year $124,869 $124,411 $170,131Related Questions
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