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In: Accounting
On July 1, 2017, Torvill Construction Company Inc. contracted to build an office building for Gumbel...
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.)
Solutions
Expert Solution
| 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 | |
ekkarill92 answered 1 year agoRelated Solutions
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are accumulated contract costs incurred, estimated costs to
complete the contract, and accumulated billings to Gumbel for 2017,
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12/31/17
At
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