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In: Accounting

Classical Ltd. Began work in 2020 on a contract for $ 1,250,000. Other data are:         ...

Classical Ltd. Began work in 2020 on a contract for $ 1,250,000. Other data are:

         2020                           2021

         Costs incurred to date......................................................................      $ 540,000                 $ 875,000

         Estimated costs to complete as of December 31.................         360,000 100,000

         Billings to date.....................................................................................         420,000 950,000

         Collections to date.............................................................................         300,000 700,000

Classical uses the percentage-of-completion method. Gross profit recognized in 2020 was $210,000 (Revenue $750,000; expense $540,000). The 2020 opening balance on LT Contract Asset/Liab is $330,000 DR.

Required:

(a) Calculate gross profit to be recognized in 2021.

(b) What amounts will be reported on the Statement of Financial Position in 2021?

(c) If the estimated costs to complete were $300,000 at the end of 2021, how would your response to part (a) change?

Solutions

Expert Solution

Year

Actual cost

(A)

Total cost incurred till date (B) (given)

Total estimated Cost ( C )

% of completion

(D)= (B/C)

Contract Price

(E)(given)

Total Revenue to be recoganized

(F) = (E * D)

Revenue for current period

(G)

Gross Profit (H) (G - A)

2020

540000

540000

540000 + 360000

=900000

60.00%

1250000

750000

750000

210000

2021

+875000-540000

= 335000

875000

875000 + 100000 =975000

89.74%

1250000

1121795

1121795-750000

= 371795

36795

A. Gross profit recognized in 2021 = $36795

(b) What amounts will be reported on the Statement of Financial Position in 2021?

Current Assets

Construction - in - Process

1121795

Less: Billings on Construction - in - Process

(950000)

$171795

Accounts Receivable

(420000 + 950000 - ( 300000 + 700000)

$ 370000

(c) If the estimated costs to complete were $300,000 at the end of 2021, how would your response to part (a) change?

Year

Actual cost

(A)

Total cost incurred till date (B) (given)

Total estimated Cost ( C )

% of completion

(D)= (B/C)

Contract Price

(E)(given)

Total Revenue to be recoganized

(F) = (E * D)

Revenue for current period

(G)

Gross Profit (H) (G - A)

2020

540000

540000

540000 + 360000

=900000

60.00%

1250000

750000

750000

210000

2021

+875000-540000

= 335000

875000

875000 + 300000

= 1175000

74.47%

1250000

930875

930875-750000

= 180875

-154125

Gross profit recognized in 2021 = $-154125

ekkarill92 answered 1 year ago
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