Perfectionist Construction Company was the low bidder on an office building cons
ID: 2466829 • Letter: P
Question
Perfectionist Construction Company was the low bidder on an office building construction contract. The contract bid was $9,000,000 with an estimated cost to complete the project of $7,000,000. The contract period was 30 months starting May 1, 2014. The company uses the cost to cost method of estimating earnings. Because of changes requested by the customer the contract price was adjusted downward to $8,600,000 on May 1, 2015.
A record of construction activities for the years 2014-2017 is as follows
Year
Actual Cost Current Year
Progress Billings
Cash Receipts
2014
$1,900,000
$2,500,000
$1,900,000
2015
3,600,000
3,400,000
3,100,000
2016
1,670,000
2,700,000
2,500,000
2017
1,100,000
The estimated cost to complete the contract as of the end of each accounting period is:
2014
$5,150,000
2015
1,600,000
2016
0
Calculate the gross profit for the years 2014-2016 under the percentage-of-completion method of revenue recognition. (Note: Round percentage to two decimal places for percentage completed.)
Year
Actual Cost Current Year
Progress Billings
Cash Receipts
2014
$1,900,000
$2,500,000
$1,900,000
2015
3,600,000
3,400,000
3,100,000
2016
1,670,000
2,700,000
2,500,000
2017
1,100,000
The estimated cost to complete the contract as of the end of each accounting period is:
2014
$5,150,000
2015
1,600,000
2016
0
Explanation / Answer
Solution :
2014
cost already incurred
1900000
cost to be incurred
5150000
total estimated cost
7050000
% completion (19/70.50)
26.95%
Revenue to be recognised
2,425,532
(9000000*26.95%)
Less : cost incurred
-1900000
Gross profit
525,532
2015
cost already incurred (1900000+3600000)
5500000
cost to be incurred
1600000
total estimated cost
7100000
% completion (55/71)
77.46%
Revenue to be recognised
6,661,560
(8600000*77.46%)
Less : Revenue already recognised in previours Years
- 2,425,532
Revenue to be recognised in current year
4,236,028
Less : cost incurred
- 3,600,000
Gross profit
636,028
2016
cost already incurred (1900000+3600000+1670000)
7170000
cost to be incurred
0
total estimated cost
7170000
% completion
100.00%
Revenue to be recognised
8,600,000
(8600000*100%)
Less : Revenue already recognised in previours Years
- 6,661,560
Revenue to be recognised in current year
1,938,440
Less : cost incurred
- 1,670,000
Gross profit
268,440
2014
cost already incurred
1900000
cost to be incurred
5150000
total estimated cost
7050000
% completion (19/70.50)
26.95%
Revenue to be recognised
2,425,532
(9000000*26.95%)
Less : cost incurred
-1900000
Gross profit
525,532
2015
cost already incurred (1900000+3600000)
5500000
cost to be incurred
1600000
total estimated cost
7100000
% completion (55/71)
77.46%
Revenue to be recognised
6,661,560
(8600000*77.46%)
Less : Revenue already recognised in previours Years
- 2,425,532
Revenue to be recognised in current year
4,236,028
Less : cost incurred
- 3,600,000
Gross profit
636,028
2016
cost already incurred (1900000+3600000+1670000)
7170000
cost to be incurred
0
total estimated cost
7170000
% completion
100.00%
Revenue to be recognised
8,600,000
(8600000*100%)
Less : Revenue already recognised in previours Years
- 6,661,560
Revenue to be recognised in current year
1,938,440
Less : cost incurred
- 1,670,000
Gross profit
268,440
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.