contract Percentage-of-Completion Accounting Perfectioni contract bid was $9,000
ID: 2445039 • Letter: C
Question
contract Percentage-of-Completion Accounting Perfectioni contract bid was $9,000,000, with an estimated cost to complete the project of $7,000,000. The period was 30 months starting May 1, 2014. The company uses the cost-to-cost method of estim earnings. Because of changes requested by the customer, the contract price was adjusted downward to xercise 8-2 ist Construction Company was the low bidder on an office building construction $8,600,000 on May 1, 2015. A record of construction activities for the years 2014-2017 is as follows: Actual Cost- Progress Current Year Billings Cash Receipts Year $1,900,000 $2,500,000 $1,900,000 ,100,000 1,670,000 2,700,000 2,500,000 3,600,000 3,400,000 3 2015. 2016 1,100,000 The estimated cost to complete the contract as of the end of each accounting period is: 2014 2015 $5,150,000 1,600,000 2016Explanation / Answer
Particulars 2014 2015 2016
Actual Cost = $1,900,000 $5,500,000 $7,170,000
Add:
Estimated Cost = $5,150,000 $1,600,000 0
_______________________________________________________________________
Total Cost $7,050,000 $7,100,000 $7,170,000
Percentage Complete 27% 52% 24%
REvenue to date $2,430,000 $4,680,000 $2,160,000
______________________________________________________________________
Revenue recognized for the year $2,430,000 $2,250,000 -$2,520,000
Less: Construction cost incurred $1,900,000 $5,500,000 $7,170,000
________________________________________________________________________
Gross Profit $530,000 ($3,250,000) ($4,650,000)
_______________________________________________________________________
Explanation
Revenue recognized for the year = $9,000,000 * 27 /100= $2,430,000
$9,000,000 * 52/100= $4,680,000
$9,000,000 * 24/100= $2,160,000
______________________________
$7,000,000 * 27 /100Approximately = $1,900,000
$7,000,000 *52/100Approximately = $3600,000
$7,000,000 * 24/100=$1,670,000
____________________________________________
$1,900,000
$1,900,000 + $3600,000 = $5,500,000
$5,500,000 +$1,670,000=$7,170,000
_______________________________________
$9,000,000 * 27/100=$2,430,000
$9,000,000 * 52/100= $4,680,000
$9,000,000 * 24/100=$2,160,000
_______________________________________________________________________
Revenue recognized for the year
$2,430,000
$4,680,000 - $2,430,000 = $2,250,000
$2,160,000 - $4,680,000 = $2,520,000
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