1. Long-term contracts:Becker Company provides the following information regardi

Question

1.   Long-term contracts:Becker Company provides the following information regarding one of its long-term constructioncontracts. Becker uses the percentage-of-completion method.         20x9          20x10      20x11     20x12Contract price   $4,000,000 $4,000,000 $4,000,000 $4,000,000Estimated total costs      3,000,000   3,200,000   4,200,000   4,300,000Costs-to-date     1,500,000   2,400,000   3,600,000   4,300,000Billings during the year     1,000,000   1,000,000   1,000,000   1,000,000Collections during the year       800,000      900,000   1,000,000    1,300,000Required:a. Determine the gross profit to be recognized each year 20x9-20x12.b. Repeat for 20x11 assuming estimated costs are $3,900,000 (instead of $4,200,000).c. Give entries for 20x9 and 20x12 (original estimates).d. What amounts would be presented on the balance sheet at December 30, 20x9-2012, and

in the income statement for the years ended December 31, 20x9-20x12).e. Compute the gross profit to be recognized each year assuming that Becker uses thecompleted contract method.

Please show steps and calculation. Thanks.

Explanation / Answer

Part A)

The gross profit for each year is calculated as follows:

Year 2009 = Costs to Date/Estimated Total Cost*(Contract Price - Estimated Total Cost) - Gross Profit Recognized Earlier = 1,500,000/3,000,000*(4,000,000 - 3,000,000) - 0 = $500,000

_______

Year 2010 = Costs to Date/Estimated Total Cost*(Contract Price - Estimated Total Cost) - Gross Profit Recognized Earlier = 2,400,000/3,200,000*(4,000,000 - 3,200,000) - 500,000 = $100,000

_______

Year 2011 = Percentage Completion*(Contract Price - Estimated Total Cost) - Gross Profit Recognized Earlier = 100%*(4,000,000 - 4,200,000) - (500,000 + 100,000) = -$800,000

_______

Year 2012 = Percentage Completion*(Contract Price - Estimated Total Cost) - Gross Profit Recognized Earlier = 100%*(4,000,000 - 4,300,000) - (500,000 + 100,000 - 800,000) = - $100,000

___________

Part B)

The revised gross profit to be recognized is calculated as follows

Revised Gross Profit for 2011 = Costs to Date/Estimated Total Cost*(Contract Price - Estimated Total Cost) - Gross Profit Recognized Earlier = 3,600,000/3,900,000*(4,000,000 - 3,900,000) - (500,000 + 100,000) = -$507,692.31

___________

Part C)

The journal entries are as follows:

_________

___________

Part D)

The treatment in the balance sheet and income statement is given in the following table:

___________

Part E)

The gross profit to be recognized as per completed contract method is calculated as follows:

Year 2009 Account Titles Debit Credit Construction in Process $1,500,000 Cash $1,500,000 (To record costs to date) Accounts Receivable $1,000,000 Billings on Construction $1,000,000 (To record bills raised for construction work completed) Cash $800,000 Accounts Receivable $800,000 (To record collection of accounts receivable) Construction in Process $500,000 Construction Expense $1,500,000 Construction Revenue $2,000,000 (To recognize gross profit for the Year 2009)

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