In 2013, Tarlo Company agrees to construct a highway for Brice County over a 3-y

Question

In 2013, Tarlo Company agrees to construct a highway for Brice County over a 3-year period (2013 through 2015). The contract price is $1,485,000, and the construction costs (both actual and estimated) total $675,000 for the 3 years. The percentage completed at the end of each year is as follows: 2013, 25%; 2014, 70%; 2015, 100%.

1. Prepare a schedule showing the amount of gross profit that Tarlo recognizes each year using the percentage-of-completion method.

2. Prepare a schedule showing the amount of gross profit that Tarlo recognizes each year using the completed-contract method. If an amount is zero, enter "0".

Explanation / Answer

Gross Profit on the Contract = $1485000 - $675000 = $810000

1. A schedule showing the amount of gross profit that Tarlo recognizes each year using the percentage-of-completion method.

2. A schedule showing the amount of gross profit that Tarlo recognizes each year using the completed-contract method. Under the completed-contract method of accounting, revenue, expenses, and gross profit is deferred until the completion of the contract.

Year Completion percentage Gross Profit upto completion Gross Profit for the year 2013 25% $810000 * 25% = $202500 $202500 2014 70% $810000 * 70% = $567000 $567000 - $202500 = $364500 2015 100% $810000 $810000 - $364500 - $202500 = $243000

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