Question

On January 12, 2009, Capsule Corp. signed a $4 million contract to construct an office and warehouse for a small wholesale company. The project was originally expected to be completed in two years, but difficulties in hiring a sufficient pool of skilled workers extended the completion date by an extra year. As well, significant increases in the price of steel in the second year resulted in cost overruns on the project. Capsule Corp. was able to negotiate a partial recovery of these costs, and the total contract value was adjusted to $4.4 million in the second year. Additional information from the project is as follows:

	2009	2010	2011
Total contract value	$4,000,000	$4,400,000	$4,400,000
Accumulated costs to date	1,300,000	2,900,000	4,900,000
Estimated costs to complete the project	2,800,000	1,700,000	0
Customer billings to date	1,900,000	2,850,000	4,400,000
Cash collected to date	1,900,000	2,850,000	4,400,000

Instructions:

a) Calculate the amount of gross profit to be recognized each year using the percentage-of-completion method. Please make sure your final answers are accurate to the nearest whole number.

	2009	2010	2011
Gross profit (loss) for the year

b) Prepare for Capsule Corp. all the required journal entries for the year ended December 31, 2010. Please make sure your final answers are accurate to 2 decimal places. Also assume that the increase in material costs has created significant uncertainty for the contract. Hint: There are 4 Journal Entries, some journal entries may or may not require more than 2 accounts.

c) Using the zero-profit method (IFRS), determine the amount of revenue and expense to report each year. Please make sure your final answers are accurate to 2 decimal places.

	2009	2010	2011
Revenue
Expense

d) Using the completed-contract method (ASPE), determine the amount of revenue and expense to report each year. Please make sure your final answers are accurate to 2 decimal places.

	2009	2010	2011
Revenue
Expense

Answer 1