Exercise 18-37 Whispering Construction Company began operations on January 1, 20

Question

Exercise 18-37 Whispering Construction Company began operations on January 1, 2017. During the year, Whispering Construction entered into a contract with Lundquist Corp. to construct a manufacturing facility. At that time, Whispering estimated that it would take 5 years to complete the facility at a total cost of $4,495,000. The total contract price for construction of the facility is $6,038,000. During the year, Whispering incurred $1,190,640 in construction costs related to the construction project. The estimated cost to complete the contract is $4,221,360. Lundquist Corp. was billed and paid 25% of the contract price. Prepare schedules to compute the amount of gross profit to be recognized for the year ended December 31, 2017, and the amount to be shown as "costs and recognized profit in excess of billings" or "billings in excess of costs and recognized profit" at December 31, 2017, under each of the following methods. (Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g. (45). If answer is O, please enter 0. Do not leave any fields blank. (a) Completed-contract method. Gross Profit to be recognized Computation of Billings on Uncompleted Contract in Excess of Related Costs under Completed-Contract Method

Explanation / Answer

(a) Completed contract method Under this method , gross profit will be recognized only on the completion of contract and not before that. Hence,gross profit to be recognized=$ 0. Billings in excess of costs and recognized profit: $ $ Billings (Contract price*25%=6038000*25%) 1509500 Less: Cost incurred 1190640 Gross profit recognized 0 1190640 Billings in excess of costs and recognized profit 318860 (b) Percentage of completion method Percentage of completion=Cost incurred during the year/Total estimated cost Revenue to be recognized=Contract price*Percenatge of completion Gross profit/(loss) to be recognized=Estimated gross profit/(Loss) *percentage of completion Estimated gross profit/(loss)=Contract price-Total estimated costs 2018 a) Contract price 6038000 b) Actual cost to date 1190640 c) Estimated costs to complete 4221360 d) Total estimated costs (b)+© 5412000 e) Estimated gross profit/(loss) (a)-(d) 626000 f) Percentage of completion (b)/(d) 22.00% g) Gross profit/(loss) to be recognized €*(f) 137720 Billings in excess of costs and recognized profit: $ $ Billings (Contract price*25%=6038000*25%) 1509500 Less: Cost incurred 1190640 Gross profit recognized 137720 1328360 Billings in excess of costs and recognized profit 181140 I appreciate your ratings

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