Question

In 2013, the Plumbing Company entered into a contract to construct a road for San Diego County for $12,000,000. The road was completed in 2015. Information related to the contract is as follows:

	2013		2014		2015
Cost incurred during the year	$3,000,000		$3,800,000		$2,700,000
Estimated costs to complete as of year-end	6,300,000		2,400,000		0
Billings during the year	3,700,000		4,000,000		4,300,000
Cash collections during the year	2,800,000		4,800,000		4,400,000

Calculate the amount of revenue and gross profit to be recognized in each of the years (2013, 2014, and 2015).

Answer 1

Solution

	2013	2014	2015
Revenue	$             3,870,968	$        4,998,597	$            3,130,435
Gross profit	$                870,968	$        1,198,597	$                430,435

Working

Working		2013	2014	2015
A	Contract Price	$ 12,000,000	$ 12,000,000	$ 12,000,000
B	Cost Incurred to Date	$ 3,000,000	$ 6,800,000	$ 9,500,000
C	Estimated cost yet to be incurred to complete the contract	$ 6,300,000	$ 2,400,000	$ 0
D = B+C	Total Cost	$ 9,300,000	$ 9,200,000	$ 9,500,000
E = (D/B) x 100	% of Completion	32%	74%	100%
F = A x E	Revenue to date	$ 3,870,968	$ 8,869,565	$ 12,000,000
G	Revenue of Previous year	$ 0	$ 3,870,968	$ 8,869,565
H = F - G	Net Revenue this year	$ 3,870,968	$ 4,998,597	$ 3,130,435
I	Cost to date	$ 3,000,000	$ 6,800,000	$ 9,500,000
J	Cost to date of previous year	$ 0	$ 3,000,000	$ 6,800,000
K = I - J	Net Cost for the year	$ 3,000,000	$ 3,800,000	$ 2,700,000
L = H - K	Gross Profits	$ 870,968	$ 1,198,597	$ 430,435