Question

During 2020, Sheridan Company started a construction job with a contract price of $1,376,000. The job was completed in 2022. The following information is available. The contract is non-cancellable.

		2020		2021		2022
Costs incurred to date		$344,000		$709,500		$920,200
Estimated costs to complete		516,000		236,500		0
Billings to date (non-refundable)		258,000		774,000		1,376,000
Collections to date		232,200		696,600		1,225,500

Calculate the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		2020		2021		2022
Gross profit / (loss)		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount

Answer 1

Solution

	2020	2021	2022
Gross profit	$                206,400	$           116,100	$                133,300

Working

		2020	2021	2022
A	Contract Price	$ 1,376,000	$ 1,376,000	$ 1,376,000
B	Cost Incurred to Date	$ 344,000	$ 709,500	$ 920,200
C	Estimated cost yet to be incurred to complete the contract	$ 516,000	$ 236,500	$ 0
D = B+C	Total Cost	$ 860,000	$ 946,000	$ 920,200
E = (D/B) x 100	% of Completion	40%	75%	100%
F = A x E	Revenue to date	$ 550,400	$ 1,032,000	$ 1,376,000
G	Revenue of Previous year	$ 0	$ 550,400	$ 1,032,000
H = F - G	Net Revenue this year	$ 550,400	$ 481,600	$ 344,000
I	Cost to date	$ 344,000	$ 709,500	$ 920,200
J	Cost to date of previous year	$ 0	$ 344,000	$ 709,500
K = I - J	Net Cost for the year	$ 344,000	$ 365,500	$ 210,700
L = H - K	Gross Profits	$ 206,400	$ 116,100	$ 133,300