Question

Tricky Ricky Construction Company, Inc., entered a fixed-price contract with Gracelyn Associates on July 1, 2021, to construct a four-story office building. At that time, Tricky Ricky estimated that it would take between two and three years to complete the project. The total contract price for construction of the building is $4,000,000. The building was completed on December 31, 2023. Estimated percentage of completion, accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Gracelyn under the contract were as follows:

	12/31/21	12/31/22	12/31/23
% Complete	10%	60%	100%
Costs incurred to date	$350,000	$2,500,000	$4,250,000
Est. Costs to complete	$3,150,000	$1,700,000	$0
Billings to Gracelyn, to date	720,000	2,170,000	4,000,00

Required:
1. Compute gross profit or loss to be recognized as a result of this contract for each of the three years. Tricky Ricky concludes that the contract does not qualify for revenue recognition over time.

2. Assuming Tricky Ricky recognizes revenue over time according to percentage of completion, compute gross profit or loss to be recognized in each of the three years

Answer 1