Shanahan Construction Company has entered into a contract beginning January 1, 2
ID: 2455749 • Letter: S
Question
Shanahan Construction Company has entered into a contract beginning January 1, 2014, to build a parking complex. It has been estimated that the complex will cost $827,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $1,441,000. The following data pertain to the construction period.
2014
2015
2016
2014
2015
2016
Costs to date $355,610 $578,900 $839,000 Estimated costs to complete 471,390 248,100 –0– Progress billings to date 339,000 562,000 1,441,000 Cash collected to date 316,000 531,000 1,441,000Explanation / Answer
(a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period.
2014
Total Contract Price = $ 1441000
Cost to date = 355610
Estimated costs to complete = 471390
Total Cost including Estimated costs to complete = 827000
Total Estimate Gross Profit = Total Contract Price - Total Cost including Estimated costs to complete
Total Estimate Gross Profit = 1441000-827000
Total Estimate Gross Profit = 614000
Percentage of Completion till date = Cost to date / Total Cost including Estimated costs to complete
Percentage of Completion till date = 355610/827000
Percentage of Completion till date = 43%
Gross profit recognized in 2014 =Percentage of Completion till date * Total Estimate Gross Profit - Gross recorded if any
Gross profit recognized in 2014 = 43%*614000 - 0
Gross profit recognized in 2014 = $ 264020
2015
Total Contract Price = $ 1441000
Cost to date = 578900
Estimated costs to complete = 248100
Total Cost including Estimated costs to complete = 827000
Total Estimate Gross Profit = Total Contract Price - Total Cost including Estimated costs to complete
Total Estimate Gross Profit = 1441000-827000
Total Estimate Gross Profit = 614000
Percentage of Completion till date = Cost to date / Total Cost including Estimated costs to complete
Percentage of Completion till date = 578900/827000
Percentage of Completion till date = 70%
Gross profit recognized in 2015 =Percentage of Completion till date * Total Estimate Gross Profit - Gross recorded if any
Gross profit recognized in 2015 = 70%*614000 - 264020
Gross profit recognized in 2015 = $ 165780
2016
Total Contract Price = $ 1441000
Cost to date = 839000
Estimated costs to complete = 0
Total Cost including Estimated costs to complete = 839000
Total Gross Profit = Total Contract Price - Total Cost including Estimated costs to complete
Total Gross Profit = 1441000-839000
Total Gross Profit = 602000
Percentage of Completion till date = Cost to date / Total Cost including Estimated costs to complete
Percentage of Completion till date = 839000/839000
Percentage of Completion till date = 100%
Gross profit recognized in 2016 =Percentage of Completion till date * Total Estimate Gross Profit - Gross recorded if any
Gross profit recognized in 2016 = 100%*602000 - (264020+165780)
Gross profit recognized in 2016 = $ 172200
Answer
(b) Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period.
Gross profit recognized in 2014 = 0
Gross profit recognized in 2015 = 0
Gross profit recognized in 2016 = 1441000-839000
Gross profit recognized in 2016 = $ 602000
Gross profit recognized in 2014 264,020 Gross profit recognized in 2015 165,780 Gross profit recognized in 2016 172,200Related Questions
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