Reference no: EM133069977
Question 1 - Carla Construction Company has entered into a contract beginning January 1, 2020, to build a parking complex. It has been estimated that the complex will cost $600,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $902,000. The following data pertain to the construction period.
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2020
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2021
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2022
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Costs to date
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$294,000
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$432,000
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$608,000
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Estimated costs to complete
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306,000
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168,000
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-0-
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Progress billings to date
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268,000
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547,000
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902,000
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Cash collected to date
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238,000
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497,000
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902,000
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(a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period.
(b) Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period.
Question 2 - On July 1, 2020, Sweet Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of $1,890,000. On July 1, Sweet estimated that it would take between 2 and 3 years to complete the building. On December 31, 2022, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Gumbel for 2020, 2021, and 2022.
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At 12/31/20
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At 12/31/21
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At 12/31/22
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Contract costs incurred to date
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$304,000
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$1,207,800
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$2,089,200
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Estimated costs to complete the contract
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1,216,000
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772,200
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-0-
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Billings to Gumbel
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300,000
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1,080,000
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1,830,000
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(a) Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2020, 2021, and 2022. (Ignore income taxes.)
(b) Using the completed-contract method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2020, 2021, and 2022. (Ignore income taxes.)