Reference no: EM132859715
Question - Cardinal Construction company entered into a contract beginning January 1, 2021, to build a parking complex. It has been estimated that the complex will cost $1,020,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $1,530,000. The following data pertain to the construction period.
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2021
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2022
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2023
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Costs to date
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$459,000
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$765,000
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$1,037,000
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Estimated costs to complete
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$560,000
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$260,000
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$-0-
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Progress billings to date
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$459,000
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$935,000
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$1,530,000
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Cash collected to date
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$408,000
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$850,000
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$1,530,000
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Required -
(a) Compute the amount of gross profit or loss that would be reported on this contract using the percentage of completion approach for 2021 and 2022, only. For credit, show computations.
(b) Compute the amount of gross profit that would be reported on this contract using the completed contract approach, for 2021 only.
(c) Prepare the journal entries to record construction costs, billings, and recognized gross profit in 2021 using the percentage of completion approach.
(d) If in 2022, Cardinal Company determined that it would have an overall loss of $20,000 rather than the profit you computed in (a), what would be recognized (recorded) as a profit or loss in 2022? Indicate both the dollar amount and whether it would be a profit or loss.