Question

During 2020, Blue Spruce Corporation started a construction job with a contract price of $6.16 million. Blue Spruce ran into severe technical difficulties during construction but managed to complete the job in 2022. The contract is non-cancellable. Under the terms of the contract, Blue Spruce sends billings as revenues are earned. Billings are non-refundable. The following information is available:

		2020		2021		2022
Costs incurred to date		$ 880,000		$3,080,000		$6,060,000
Estimated costs to complete		4,620,000		3,080,000		-0-

Calculate the amount of gross profit that should be recognized each year under the percentage-of-completion method.

2020

2021

2022

Answer 1

Year	Gross Profit
2020	$                105,600
2021	$              (105,600)
2022	$                100,000

Working:

Year	Actual Cost Incurred[a]	Accumulated cost incurred till date[b]	Total estimated Cost [c]	% of Completed [d=b/c]	Contract Price[e]	Revenue Recognized[f=e*f]	Current Period Revenue [g]	Gross Profit [g-a]
2020	$                880,000	$                880,000	$             5,500,000	16.00%	$        6,160,000	$            985,600	$            985,600	$          105,600
2021	$             2,200,000	$             3,080,000	$             6,160,000	50.00%	$        6,160,000	$        3,080,000	$        2,094,400	$       (105,600)
2022	$             2,980,000	$             6,060,000	$             6,060,000	100.00%	$        6,160,000	$        6,160,000	$        3,080,000	$          100,000