On July 1, 2017, Oriole Construction Company Inc. contracted to build an office

Question

On July 1, 2017, Oriole Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of $1,890,000. On July 1, Oriole estimated that it would take between 2 and 3 years to complete the building. On December 31, 2019, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Gumbel for 2017, 2018, and 2019. At 12/31/17 At 12/31/18 At 12/31/19 Contract costs incurred to date $286,900 $1,154,200 $2,088,600 Estimated costs to complete the contract 1,223,100 835,800 –0– Billings to Gumbel 300,000 1,090,000 1,840,000 (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.)

Explanation / Answer

Gross profit to be recognized each year under the percentage of completion method = (cost to date / total estimated costs * expected profit) - previously recognized profits

* Total estimated costs = Costs to date + Estimated costs to complete

* Expected profit = Contract price - Total estimated costs

December 31, 2017 December 31,2018 December 31,2019 Cost to date 286,900 1,154,200 2,088,600 Total estimated costs 1,510,000 (286,900+1,223,100) 1,990,000 (1,154,200+835,800) 2,088,600 Expected profit 380,000 (1,890,000-1,510,000) (100,000) (1,890,000-1,990,000) (198,600) (1,890,000-2,088,600) Previously recognized profits 0 380,000 280,000 (380,000-100,000) Profit/loss 72,200 -172,200 (-100,000-72,200) -98,600 (-198.6+172,200-72,200)

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