Sheffield Construction Company has entered into a contract beginning January 1, 2020, to build a parking...

Sheffield Construction Company has entered into a contract beginning January 1, 2020, to build a parking complex. It has been estimated that the complex will cost $595,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $903,000. The following data pertain to the construction period.

	2020	2021	2022
Costs to date	$279,650	$487,900	$606,000
Estimated costs to complete	315,350	107,100	–0–
Progress billings to date	272,000	545,000	903,000
Cash collected to date	242,000	495,000	903,000

(a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period. (If answer is 0, please enter 0. Do not leave any fields blank.)

Gross profit recognized in 2020		$
Gross profit recognized in 2021		$
Gross profit recognized in 2022		$

(b) Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period. (If answer is 0, please enter 0. Do not leave any fields blank.)

Gross profit recognized in 2020		$
Gross profit recognized in 2021		$
Gross profit recognized in 2022		$

Solutions

Expert Solution

(a)

Gross profit recognized in 2020	$ 144,760
Gross profit recognized in 2021	$ 107,800
Gross profit recognized in 2022	$ 44,440

Working:

Percentages of completion
	Choose numerator	÷	Choose denominator	=	% complete to date
	Actual costs to date		Estimated total costs		% complete to date
2020	279650	÷	595000	=	47.00%
2021	487900	÷	595000	=	82.00%
2022	606000	÷	606000	=	100.00%
2020
	To date		Recognized in prior years		Recognized in 2020
Construction revenue	424410		0		424410
Construction expense	279650		0		279650
Gross profit (loss)	144760		0		144760
2021
	To date		Recognized in prior years		Recognized in 2021
Construction revenue	740460		424410		316050
Construction expense	487900		279650		208250
Gross profit (loss)	252560		144760		107800
2022
	To date		Recognized in prior years		Recognized in 2022
Construction revenue	903000		740460		162540
Construction expense	606000		487900		118100
Gross profit (loss)	297000		252560		44440

(b)

Gross profit recognized in 2020	$ 0
Gross profit recognized in 2021	$ 0
Gross profit recognized in 2022	$ 297,000

Under the completed contract method, the entire revenue and gross profit on the project will be recognized only on the completion of the project in 2022. Thus, the entire gross profit of $903000 - $606000 = $297000 is recognized in 2022.

ekkarill92 answered 1 year ago

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