Completed Contract Method versus Percentage-of-Completion Method The Miller Comp

Question

Completed Contract Method versus Percentage-of-Completion Method The Miller Company won a contract to build a shopping center at a price of $240 million The following schedule details the estimated and actual costs of construction and the actual cash collections under the contract: Estimated (Actual) CostsCash Collections of Construction From Customer Year 1 Year 2 Year 3 Year 4 $40,000,000 60,000,000 70,000,000 30,000,000 200,000,000 $48,000,000 60,000,000 60,000,000 72,000,000 $240,000,000 Prepare an income statement for the Miller Company for each year assuming that the company recognizes revenue under the completed contract method Year 1 Year 2 Year 3 Year 4 Total Revenue Construction Cost Net Income Prepare an income statement for the Miller Company for each year assuming that the company recognizes revenue under the percentage-of-completion method Year 1 Year 2 Year 3 Year 4 Total Revenue Construction Cost Net Income

Explanation / Answer

Net Profit is calculated as under:

Completed contract Method S.No. Detail 1 2 3 4 1 Cost incurred during
the year $400,00,000 $600,00,000 $700,00,000 $300,00,000 2 Accumulated Cost
At The End $400,00,000 $1000,00,000 $1700,00,000 $2000,00,000 3 Estimated costs to complete
as of year-end $1600,00,000 $1000,00,000 $300,00,000 $0 4 Estimated Total Cost (2+3) $2000,00,000 $2000,00,000 $2000,00,000 $2000,00,000 5 Completion %(2/5) 0.00% 0.00% 0.00% 100.00% 6 Recognized Revenue till
date 240000000*Completion%                          -                          -                            -                     2400,00,000 7 Recognized Revenue in year                          -                          -                            -                     2400,00,000 8 Billings during the year $0 $0 $0 $0 9 Cash collections during
the year $480,00,000 $600,00,000 $600,00,000 $720,00,000 10 Gross Profit(7-1) $0 $0 $0 $400,00,000

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