In: Accounting
PART B
Quality Construction Company (QCC) successfully secured the contract to build a new community centre for the City of Burnaby. The total fixed contract price is $25.0 million.
The following schedule indicates (for the three-year period during which construction took place) the costs incurred to date, the estimated costs to complete the community centre complex, and the amount of cash received scheduled to be received from the City of Burnaby. According to normal practice in the industry, the final 10% of the contract price is not paid until a few months after the construction is completed.
2019 |
2020 |
2021 |
|
Cash payments |
$4,000,000 |
$15,000,000 |
$6,000,000 |
Costs incurred to date (cumulative) |
$6,500,000 |
$14,000,000 |
$24,000,000 |
Estimated costs to complete at end of applicable year |
$16,000,000 |
$14,000,000 |
$0 |
Required:
Calculate the amount of revenue, costs and any other amounts that QCC should recognize in 2020 and 2021 using the percentage of completion method. Carry calculations of percentage completed to FOUR decimal places.
Solution
2020 | 2021 | |
Revenue | $ 5,277,775 | $ 12,500,000 |
Gross profit | $ (2,222,225) | $ 2,500,000 |
Working
2019 | 2020 | 2021 | ||
A | Contract Price | $ 25,000,000 | $ 25,000,000 | $ 25,000,000 |
B | Cost Incurred to Date | $ 6,500,000 | $ 14,000,000 | $ 24,000,000 |
C | Estimated cost yet to be incurred to complete the contract | $ 16,000,000 | $ 14,000,000 | $ 0 |
D = B+C | Total Cost | $ 22,500,000 | $ 28,000,000 | $ 24,000,000 |
E = (D/B) x 100 | % of Completion | 28.8889% | 50.0000% | 100.0000% |
F = A x E | Revenue to date | $ 7,222,225 | $ 12,500,000 | $ 25,000,000 |
G | Revenue of Previous year | $ 0 | $ 7,222,225 | $ 12,500,000 |
H = F - G | Net Revenue this year | $ 7,222,225 | $ 5,277,775 | $ 12,500,000 |
I | Cost to date | $ 6,500,000 | $ 14,000,000 | $ 24,000,000 |
J | Cost to date of previous year | $ 0 | $ 6,500,000 | $ 14,000,000 |
K = I - J | Net Cost for the year | $ 6,500,000 | $ 7,500,000 | $ 10,000,000 |
L = H - K | Gross Profits | $ 722,225 | -$ 2,222,225 | $ 2,500,000 |