During 2017, Pina Company started a construction job with a contract price of $1
ID: 2331494 • Letter: D
Question
During 2017, Pina Company started a construction job with a contract price of $1,610,000. The job was completed in 2019. The following information is available.
2017
2018
2019
2017: $
2018:$
2019:$
During 2017, Pina Company started a construction job with a contract price of $1,610,000. The job was completed in 2019. The following information is available.
2017
2018
2019
Costs incurred to date $434,300 $859,560 $1,073,000 Estimated costs to complete 575,700 242,440 –0– Billings to date 301,000 897,000 1,610,000 Collections to date 271,000 817,000 1,428,000Explanation / Answer
Answers
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 difference 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.
Working
Year end 2017
Year end 2018
Year end 2019
A
Contract Price
$ 1,610,000.00
$ 1,610,000.00
$ 1,610,000.00
B
Cost Incurred to Date
$ 434,300.00
$ 859,560.00
$ 1,073,000.00
C
Estimated cost yet to be incurred to complete the contract
$ 575,700.00
$ 242,440.00
$ -
D = B+C
Total Cost
$ 1,010,000.00
$ 1,102,000.00
$ 1,073,000.00
E = (D/B) x 100
% of Completion
43.00%
78.00%
100.00%
F = A x E
Revenue to date
$ 692,300.00
$ 1,255,800.00
$ 1,610,000.00
G
Revenue of Previous year
$ -
$ 692,300.00
$ 1,255,800.00
H = F - G
Net Revenue this year
$ 692,300.00
$ 563,500.00
$ 354,200.00
I (=B)
Cost to date
$ 434,300.00
$ 859,560.00
$ 1,073,000.00
J
Cost to date of previous year
$ -
$ 434,300.00
$ 859,560.00
K = I - J
Net Cost for the year
$ 434,300.00
$ 425,260.00
$ 213,440.00
L = H - K
Gross Profits
$ 258,000.00
$ 138,240.00
$ 140,760.00
----Answer---
.
Gross profit recognized in 2017
$ 258,000
Gross profit recognized in 2018
$ 138,240
Gross profit recognized in 2019
$ 140,760
---Under ‘this method’, Gross Profits are recognised ONLY when the contract is FULLY Complete.
Therefore, there will be no ‘gross profit’ for 2017 and 2018
---Working---
Contract Price
$ 1,610,000.00
Total Cost
$ 1,073,000.00
Gross Profits on Contract to be recorded in 2019
$ 537,000.00
---Answers---
Gross profit recognized in 2017
$ 0
Gross profit recognized in 2018
$ 0
Gross profit recognized in 2019
$ 537,000
Accounts title
Debit
Credit
Construction in Progress [Req 1: Row ‘K’]
$ 425,260.00
Cash
$ 425,260.00
(construction cost incurred)
Accounts receivables [897000 – 301000]
$ 596,000.00
Billing on Construction contracts
$ 596,000.00
(amount billed during the year)
Cash [817000 – 271000]
$ 546,000.00
Accounts receivables
$ 546,000.00
(cash received)
Construction in Progress
$ 138,240.00
Construction expenses
$ 425,260.00
Construction Revenue
$ 563,500.00
(revenue recognised)
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 difference 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.
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