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How the construction contract would be reported

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Reference no: EM132678549

Hisham Barnes has entered into a non-cancellable fixed price contract for $2.8 million beginning August 1, 2019, to build a condominium. It has been estimated that the construction will be complete by June 2021.

The following data pertain to the construction periods with calendar year ends.

                                                                              2019                    2020                 2021

Costs to date                                              70000              190000            2350000

Estimated costs to complete                          1700000             600000            -0-

Progress billings to date (non-refundable)           850000               2300000         2800000

Cash collected to date                                   800000                 110000           2800000

Required

Problem a. Using the percentage-of-completion method, calculate the estimated gross profit that would be recognized during each year of the construction period. Round the percent complete to the nearest whole percentage point.

Problem b. Prepare the journal entries for 2020 and 2021.

Problem c. What is the balance in the Contract Asset/Liability account at December 31, 2019, 2020 and 2021?

Problem d. Show how the construction contract would be reported on the statement of financial position (SFP) and the income statement for the year ended December 31, 2021.

Problem e. Using the zero-profit (completed contract) method,what is the gross profit in each of the years

Reference no: EM132678549

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