Question

Problem 18-10

On March 1, 2017, Bridgeport Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,340,000. The building was completed by October 31, 2019. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2017, 2018, and 2019 are given below:

		2017		2018		2019
Contract costs incurred during the year		$2,811,600		$2,152,400		$2,336,000
Estimated costs to complete the contract at 12/31		3,578,400		2,336,000		–0–
Billings to Fabrik during the year		3,210,000		3,470,000		1,660,000

(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, 2017, 2018, and 2019. (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, 2017, 2018, and 2019. (Ignore income taxes.)

Answer 1

1
2017	Costs to date at December 31, 2017	2,811,600
	Estimated costs to complete	3,578,400
	Estimated total costs	6,390,000
	Percent complete 2811600/6,390,000	44%
	Revenue recognized 8340000*44%	3,669,600
	Costs incurred	2,811,600
	Profit recognized in 2017	858,000
2018	Costs to date at December 31, 2018	4,964,000
	Estimated costs to complete	2,336,000
	Estimated total costs	7,300,000
	Contract price	(8,340,000)
	Total loss	(1,040,000)
	Plus gross profit recognized in 2017	858,000
	Loss recognized in 2018	(182,000)
2019	Costs to date at December 31, 2019 2336000+2811600+2152400	7,300,000
	Estimated costs to complete	-
	Contract price	(8,340,000)
	Total loss	(1,040,000)
	Total loss		(1,040,000)
	Less: Loss recognized in 2018	(182,000)
	Gross profit recognized in 2017	858,000	676,000
	Loss recognized in 2019		(364,000)
b
2017	No profit or loss is recognized in 2017.
2018	Contract price	8,340,000
	Estimated costs	5,914,400
	Profit recognized	2,425,600
2019	Contract price	8,340,000
	Cost incurred	-7,300,000
	Total Profit	1,040,000
	Less: Profit recognized in 2018	2,425,600
	Loss recognized	(1,385,600)