Question

In: Accounting

On March 1, 2017, Pechstein Construction Company contracted to construct a factory building for Fabrik Manufacturing...

On March 1, 2017, Pechstein Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,400,000. 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

$2,208,000

$2,230,000

$2,190,000

Estimated Costs to Complete the Contract at 12/31

$3,520,000

$2,190,000

-0-

Billings to Gumbel

$3,200,000

$3,500,000

$1,700,000

Instructions  

(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.)  

Solutions

Expert Solution

Solution

2017 2018 2019
Revenue $       3,237,988.83 $ 2,386,513.29 $      2,775,497.89
Gross profit $       1,029,988.83 $     156,513.29 $          585,497.89

Answer in zero decimal place

2017 2018 2019
Revenue $             3,237,989 $        2,386,513 $            2,775,498
Gross profit $             1,029,989 $           156,513 $                585,498
Schedules to compute the profit or loss to be recognized as a result of this contract
2017 2018 2019
A Contract Price $ 8,400,000 $ 8,400,000 $ 8,400,000
B Cost Incurred to Date $ 2,208,000 $ 4,438,000 $ 6,628,000
C Estimated cost yet to be incurred to complete the contract $ 3,520,000 $ 2,190,000 $ 0
D = B+C Total Cost $ 5,728,000 $ 6,628,000 $ 6,628,000
E = (D/B) x 100 % of Complition 39% 67% 100%
F = A x E Revenue to date $ 3,237,989 $ 5,624,502 $ 8,400,000
G Revenue of Previous year $ 0 $ 3,237,989 $ 5,624,502
H = F - G Net Revenue this year $ 3,237,989 $ 2,386,513 $ 2,775,498
I Cost to date $ 2,208,000 $ 4,438,000 $ 6,628,000
J Cost to date of previous year $ 0 $ 2,208,000 $ 4,438,000
K = I - J Net Cost for the year $ 2,208,000 $ 2,230,000 $ 2,190,000
L = H - K Gross Profits $ 1,029,989 $ 156,513 $ 585,498

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