The following scenario will be used for the next three questions Miser Construct

Question

The following scenario will be used for the next three questions Miser Construction Company (who applies the Percentage of Completion method) was the low bidder on a construction project to build a bridge for $14,000,000. The project was begun in 2016 and completed in 2018. Cost and other data are presented below ("costs incurred" are for each particular year): 2016 2017 2018 Costs incurred (during specific year) Estimated costs to complete end of year) Billings during the year Cash collections during the year $3,000,000 $6,000,000 $2,800,000 $9,000,000 $3,200,000 $2,800,000 $3,000,000 $6,800,000 $6,600,000 $0 $4,000,000 $4,600,000

Explanation / Answer

Gross profit to be recognized under percentage of completion method: 2016 2017 2018 Contract price 14000000 14000000 14000000 Cost incurred till date 3000000 9000000 11800000 Estimated cost to complete 9000000 3000000 0 Total estimated costs 12000000 12000000 11800000 Estimated gross profit/(loss) 2000000 2000000 2200000 % of completion 25.00% 75.00% 100.00% Gross profit earned today 500000 1500000 2200000 Less: Gross profit earned previously 0 500000 1500000 Total Gross profit earned/recognized 500000 1000000 700000 Notes: Estimated gross profit/Loss=Contract price-Total estimated costs % of completion=Cost incurred till date/Total estimated costs The amount of profit to be recognized in 2018 is : $ 700000

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