Question
In: Accounting
Using Percentage-of-Completion and Completed Contract Methods Halsey Building Company signed a contract to build an office...
Using Percentage-of-Completion and Completed Contract Methods
Halsey Building Company signed a contract to build an office building for $40,000,000. The scheduled construction costs follow.
| Year | Cost |
|---|---|
| 2016 | $9,000,000 |
| 2017 | 15,000,000 |
| 2018 | 6,000,000 |
| Total | $30,000,000 |
The building is completed in 2018.
For each year, compute the revenue, expense, and gross profit
reported for this construction project using each of the following
methods.
a. Percentage-of-completion method
| 2016 | 2017 | 2018 | |
|---|---|---|---|
| Revenue | Answer | Answer | Answer |
| Expense | Answer | Answer | Answer |
| Gross Profit | Answer | Answer | Answer |
b. Completed contract method
| 2016 | 2017 | 2018 | |
|---|---|---|---|
| Revenue | Answer | Answer | Answer |
| Expense | Answer | Answer | Answer |
| Gross Profit | Answer | Answer | Answer |
Solutions
Expert Solution
| We follow the Percentage of completion method for revenue recognition in long-term construction contracts which span over more than one accounting periods. | |||||||||
| Revenue recognised = Percentage of work completed in the period / Total contract value | |||||||||
| Percentage of work completed = Expenditures Incurred from Inception to Date / Total Estimated Costs for the Contract | |||||||||
| Calculation of percentage of work completed | |||||||||
| 2016 | 2017 | 2018 | |||||||
| Total cost incurred till date | 9000000 | 24000000 | 30000000 | ||||||
| Total Estimated Cost for the contract | 30000000 | 30000000 | 30000000 | ||||||
| Percentage of work completed | 30% | 80% | 100% | ||||||
| Percentage of work completed during the year | 30% | 50% | 20% | ||||||
| Answer a | |||||||||
| Percentage-of-completion method | |||||||||
| We apply the above % of work completed to the Total contract price to derive the revenue every year. | |||||||||
| 2016 | 2017 | 2018 | |||||||
| Revenue | $12,000,000.00 | $20,000,000.00 | $8,000,000.00 | ||||||
| Expense | $9,000,000.00 | $15,000,000.00 | $6,000,000.00 | ||||||
| Gross Profit | $3,000,000.00 | $5,000,000.00 | $2,000,000.00 | ||||||
| Answer b | |||||||||
| Completed Contract Method | |||||||||
| 2016 | 2017 | 2018 | |||||||
| Revenue | $0.00 | $0.00 | $40,000,000.00 | ||||||
| Expense | $9,000,000.00 | $15,000,000.00 | $6,000,000.00 | ||||||
| Gross Profit | -$9,000,000.00 | -$15,000,000.00 | $34,000,000.00 | ||||||
ekkarill92 answered 2 years agoRelated Solutions
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