On March 1, 2017, Sandhill Construction Company contracted to construct a factor
ID: 2404275 • Letter: O
Question
On March 1, 2017, Sandhill Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,400,000. The building was completed by October 31, 2019. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2017, 2018, and 2019 are given below:
2017
2018
2019
(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.) (If answer is 0, please enter 0. Do not leave any fields blank.)
2017
2018
2019
(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.) (If answer is 0, please enter 0. Do not leave any fields blank. Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
2017
2018
2019
Contract costs incurred during the year $2,700,600 $2,503,700 $2,125,700 Estimated costs to complete the contract at 12/31 3,729,400 2,125,700 –0– Billings to Fabrik during the year 3,230,000 3,470,000 1,700,000Explanation / Answer
1 Under percentage of completion method,Gross profit is recognized ech year of contract based on percentage of completion. 2017 2018 2019 Contract price (1) 8400000 8400000 8400000 Actual cost to date (a) 2700600 5204300 7330000 (2700600+2503700) (5204300+2125700) Estimated cost to complete (b) 3729400 2125700 0 Total estimated cost ©=(a)+(b) 6430000 7330000 7330000 Percentage of completion (a)/© 42% 71% 100% Expected gross profit (1)-© 1970000 1070000 1070000 Gross profit to be recognized=(Expected gross profit*Percentage of completion)-Gross profit already recognized 2017 Gross profit to be recognized=(1970000*42%)-0=$ 827400 2018 Gross profit/(loss) to be recognized=(1070000*71%)-827400=$ (67700) 2019 Gross profit/(loss) to be recognized=(1070000*100%)-827400+67700=$ 310300 2 Under completed contract method,Gross profit is recognized in the year of completion of contract 2017 Gross profit to be recognized=0 (Since contract has not completed) 2018 Gross profit to be recognized=0 (Since contract has not completed) 2019 Gross profit to be recognized=Contract price-Actual cost to date=8400000-7330000=$ 1070000
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