Question

On July 1, 2017, Torvill Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of $1,900,000. On July 1, Torvill 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 $  300,000 $1,200,000 $2,100,000 Estimated costs to complete the contract  1,200,000    800,000 -0- Billings to Gumbel    300,000  1,100,000  1,850,000 Instructions (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.) (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.)

Answer 1

	Percentage completion method	2017	2018	2019
	Cost incurred in till previous year	0	300000	1200000
ADD	Cost incurred during the year	300000	900000	900000
	Total cost incurred till date	300000	1200000	2100000
ADD	Estimated cost to be incurred	1200000	800000	0
	Total estimated cost to be incurred	1500000	2000000	2100000
	Percentage of completion (A)	20%	60.00%	100%
	(cost incurred till date /total estimated cost )
	Total revenue (B)	1900000	1900000	1900000
	Total revenue recognized (A *B)	380000	1140000	1900000
Less	Revenue recognized in previous year	0	380000	1140000
	revenue recognized in current year	380000	760000	760000
		2017	2018	2019
	Revenue	380000	760000	760000
Less	Cost incurred	300000	900000	900000
	Gross profit	80000	-140000	-140000
b)	Completed contracts
		2017	2018	2019
	Revenue	0	0	1900000
Less	Cost incurred	300000	900000	900000
	Gross profit	-300000	-900000	1000000