Question

Problem 18-11

On July 1, 2017, Vaughn Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of $1,890,000. On July 1, Vaughn estimated that it would take between 2 and 3 years to complete the building. On December 31, 2019, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Gumbel for 2017, 2018, and 2019.

		At 12/31/17		At 12/31/18		At 12/31/19
Contract costs incurred to date		$304,000		$1,207,800		$2,089,200
Estimated costs to complete the contract		1,216,000		772,200		–0–
Billings to Gumbel		300,000		1,080,000		1,830,000

(a) Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2017, 2018, and 2019. (Ignore income taxes.) (If answer is 0, please enter 0. Do not leave any field blank.)

(b) Using the completed-contract method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2017, 2018, and 2019. (Ignore income taxes.) (If answer is 0, please enter 0. Do not leave any fields blank.)

Answer 1

a)	Stement of Profit or (loss) to be recognised in the statements of accounts using Percentage of Completion Method
		Year end 2017	Year end 2018	Year end 2019
	Contract Price	$       1,890,000.00	$ 1,890,000.00	$ 1,890,000.00
	Less- Estimated Cost
	Cost to date	$           304,000.00	$ 1,207,800.00	$ 2,089,200.00
	Cost To complete	$       1,216,000.00	$      772,200.00	$                        -
	Total Cost	$       1,520,000.00	$ 1,980,000.00	$ 2,089,200.00
	Gross Profit	$           370,000.00	$      (90,000.00)	$    (199,200.00)
	Percentage Cpmplete	20%	61%	100%
	Revenue
	Total Revenue	$       1,890,000.00	$ 1,890,000.00	$ 1,890,000.00
	Percentage	20%	61%	100%
		$           378,000.00	$ 1,152,900.00	$ 1,890,000.00
	Less-Revenue of Previous Year	$                            -	$      378,000.00	$ 1,152,900.00
	Current year revenue	$           378,000.00	$      774,900.00	$      737,100.00
	Gross profit
	Revenue	$           378,000.00	$ 1,152,900.00	$ 1,890,000.00
	Cost	$           304,000.00	$ 1,207,800.00	$ 2,089,200.00
	Gross Profit	$             74,000.00	$      (54,900.00)	$    (199,200.00)
	Less Gross Profit of previous year	$                            -	$        74,000.00	$    (128,900.00)
	Gross profit To be Recognised in Current Year	$             74,000.00	$   (128,900.00)	$      (70,300.00)
b)	Stement of Profit or (loss) to be recognised in the statements of accounts using Complete Contract Method
				Year end 2019
	Contract Price			$ 1,890,000.00
	Total Cost			$ 2,089,200.00
	Net Loss on Contract to be recorded in 2019			$    (199,200.00)
	Notes;
	1) No profit or loss will be recorded in the year 2017 and 2018 under Compete Contract Method
	2) The Profits or loss under both methods will be Exactly same, The only diffrence is Profit or loss is recognised in year of completion in case of Completed Contract method and under Percentage on completion method Profit or loss is recognised in all years in which work is done.