Question

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.)  

Answer 1

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