Question 42 Horner Construction Co. uses the percentage-of-completion method. In

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Question 42

Horner Construction Co. uses the percentage-of-completion method. In 2012, Horner began work on a contract for $11,000,000; it was completed in 2013. The following cost data pertain to this contract:

year ended December 31

2012 2013

cost incured during the year $3,900,000 $2,800,000

Estimated costs to complete at the end of year 2,600,000   

If the completed-contract method of accounting was used, the amount of gross profit to be recognized for years 2012 and 2013 would be

2012 2013

a. $4,500.000 $0

b. $ 4,300,000 $(200,000)

c. $0 $4,300,000

d $0 $ 4,500,000

Question 45

Horner Construction Co. uses the percentage-of-completion method. In 2012, Horner began work on a contract for $11,000,000; it was completed in 2013. The following cost data pertain to this contract:

year ended December 31

2012 2013

cost incurred during the year $ 3,900,000 2,800,000

Estimated costs to complete at the end of year 2,600,000

The amount of gross profit to be recognized on the income statement for the year ended December 31, 2013 is

$1,600,000.

$1,800,000.

$1,720,000.

$4,300,000.

Question 46

Gorman Construction Co. began operations in 2013. Construction activity for 2013 is shown below. Gorman uses the completed-contract method.

Contract contract price Bill through 12/31/13 collect through12/31/13 costs to 12/31/13
   1          $ 3,200,000    $3,150,000                  $2,600,000                   $2,150,000

   2          $3,600,000      $1,500,000                   $1,000,000                  $820,000

    3           3,300,000        1,900,000                      1,800,000                   2,250,000

Which of the following should be shown on the balance sheet at December 31, 2013 related to Contract 2?

Inventory, $820,000

Inventory, $680,000

Current liability, $1,500,000

Current liability, $680,000

$1,600,000.

$1,800,000.

Explanation / Answer

42. 2012 =0

2013 = 4300000

in completed contract method revenue is recognised only when contract is completed...so, in year 2012 revenue will be 0.

2013=11000000-(3900000+2800000)=4300000

45. 4300000

profit= 11000000-(3900000+2800000)=4300000

46. current liability =680000

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