Question 1 (a) Question 1 Daisy Construction Ltd. has entered into a contract be

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Question 1

(a)

Question 1

Daisy Construction Ltd. has entered into a contract beginning January 1, 2014, to build a parking complex. It has estimated that the complex will cost $8 million and will take three years to construct.

The complex will be billed to the purchasing company at $11.5 million. The details are as follows:
2014 2015 2016 Costs to date $ 3,060,000 $ 6,435,000 $ 8,600,000 Estimated costs to complete 4,595,900 1,964,375 –0– Progress billings to date 4,000,900 6,300,000 11,500,000 Cash collected to date 3,500,900 5,000,000 11,500,000
Under the earnings approach:

Explanation / Answer

Gross profit to date = % complete X Total estimated gross profit

Total Estimated Gross profit =Total Contract Amount-Total Cost

                                    =$11,500,000-$8,600,000

                                    =$2,900,000

% of Work complete :

2014:

=cost incurred to date/( cost incurred to date+ Estimated cost to complete)

=$3,060,000/($3,060,000+$4,595,900)

=$3,060,000/$7,655,900=39.97%

Gross Profit 2014=$2,900,000 x 39.97%=$1,159,130

% of Work complete :

2015:

=cost incurred to date/( cost incurred to date+ Estimated cost to complete)

=$6,435,000/($6,435,000+$1,964,375)

=$6,435,000/$8,399,375=72%

Gross Profit 2014=$2,900,000 x72%=$2,088,000

Current year's gross profit = Gross profit to date - Gross profit in prior years

                                           =$2,088,000-$1,159,130

                                            =$928,870

2016: Gross profit = Total Gross Profit-Gross profit till previous years

                             =$2,900,000-$2,088,000=$812,000

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