Recognition of Profit on Long-Term Contracts) During 2010 Nilsen Company started
ID: 2388008 • Letter: R
Question
Recognition of Profit on Long-Term Contracts) During 2010 Nilsen Company started a construction job with a contract price of $1,600,000. The job was completed in 2012. The following information is available.2010 2011 2012
Costs incurred to date $400,000 $825,000 $1,070,000
Estimated costs to complete 600,000 275,000 –0–
Billings to date 300,000 900,000 1,600,000
Collections to date 270,000 810,000 1,425,000
Compute the amount of gross profit to be recognized each year assuming the percentage-of- completion method is used.
Prepare all necessary journal entries for 2011.
Compute the amount of gross profit to be recognized each year assuming the completed-contract method is used.
Explanation / Answer
% of costs incurred each year = 2010 = 400000/(400000+600000) = 40% 2011 =825000/(825000+275000) = 75% 2012 = 100% % of revenue each year = % of costs each year(percentage completion method) 2010 = 40% = 0.4*1600000 =640000 2011 = 75-40 =0.35*1600000 =560000 2012 =0.25*1600000 = 400000 gross profit each year = 2010 =640000 - 400000 = 240000 2011=560000-(825000-400000) =135000 2012 = 400000 - (1070000-825000)= 155000
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