Question

Long-term Contracts

Koolman Construction Company began work on a contract in 2017. The contract price is $3,000,000, and the company determined that its performance obligation was satisfied over time. Other information relating to the contract is as follows:

2017 2018
Costs incurred during the year $ 600,000 $ 700,000
Estimated costs to complete, December 31 $1,400,000 $1,200,000
Billings during the year $500,000 $850,000
Collections during the year $400,000 $800,000

Required:

1. Compute the gross profit or loss recognized in 2017 and 2018.

KOOLMAN CONSTRUCTION COMPANY
Gross Profit / Loss
2017 and 2018
                                                             2017           2018         
Construction costs incurred to date $_______ $ _______
Estimated costs to complete $ ________ $ ________
Total estimated costs $ _________ $ __________
Percentage completed %_________ %________
Revenue to date $_________ $ __________
Revenue recognized in current year $_______ $ _________
Costs incurred in current year __________    __________
Profit (loss) recognized $________ $ _________

2. Prepare the appropriate sections of the income statement for each year.

KOOLMAN CONSTRUCTION COMPANY
Partial Income Statement
For the Years Ended December 31, 2017 and 2018
                                        2017                     2018
Construction revenue $ ________ $_____________
Construction expense __________    ____________
Gross profit (loss) $___________    $____________

Prepare the appropriate sections of the ending balance sheet for the year 2017.

KOOLMAN CONSTRUCTION COMPANY
Partial Balance Sheet
December 31, 2017
Current Assets:

Accounts receivable: $__________
Inventory:

Construction in progress $___________
Less: Partial billings    $_____________
Costs and recognized profit not yet billed   $__________

Prepare the appropriate sections of the ending balance sheet for 2018.

KOOLMAN CONSTRUCTION COMPANY
Partial Balance Sheet
December 31, 2018
Current Assets:
Accounts receivable: $________________
Inventory:
Construction in progress $____________
Less: Partial billings _________________
Costs and recognized profit not yet billed ______________

Answer 1

a.

Computation of gross profit for Koolman Construction Company for the years 2017 and 2018
Contract price (construct highway)	3000000
Particulars	2017	2018
Estimated costs to complete	1400000	1200000
Costs incurred till date	600000	1300000
Total costs to complete	2000000	2500000
Billings during the year	500000	850000
Collections during the year	400000	800000
Percentage completion till date	30%	52%
Revenue to date
% completion * agreement price	900000	1560000
Revenue realized during the year	900000	660000
Costs included during the year	600000	700000
Gross profit for the year	300000	-40000
Gross profit for the year 2017= Revenue- Cost
$900000-$600000= $300000
Loss for the year 2018
Revenue- Cost= $660000- $700000= $40000
b.
Appropriate sections in the income statement and the balancesheet for the year 2017 and 2018 as below:
Income statement for Koolman Construction Company
particulars	2017	2018
Construction project revenue	900000	660000
Less: Construction project expenses	600000	700000
Gross profit/(loss)	300000	-40000
Balance sheet for Koolman Construction Company for 2017
Current assets
accounts Receivable		100000
Construction in procedure account	900000
Less: part billing account	500000
Net expenses and profit till not billed		400000
Balance sheet for Koolman Construction Company for 2018
Current assets
accounts Receivable		150000
Construction in procedure account	1560000
Less: part billing account	1350000
Net costs and profit till not billed		210000