On February 1, 2010, Marsh Contractors agreed to construct a building at a contr

Question

On February 1, 2010, Marsh Contractors agreed to construct a building at a contract price of $6,000,000. Marsh estimated total construction costs would be $4,000,000 and the project would be finished in 2012. Information relating to the costs and billings for this contract is as follows:
2010 2011 2012
Total costs incurred to date $1,500,000 $2,640,000 $4,600,000
Estimated costs to complete 2,500,000 1,760,000 -0-
Customer billings to date 2,200,000 4,000,000 5,600,000
Collections to date 2,000,000 3,500,000 5,500,000
Instructions
Fill in the correct amounts on the following schedule. For percentage-of-completion accounting and for completed-contract accounting, show the gross profit that should be recorded for 2010, 2011, and 2012. And, record the journal entries to close the contracts both under the percentage-of-completion and completed contract methods upon completion.
Percentage-of-Completion Completed-Contract
Gross Profit Gross Profit
2010 2010

2011 2011

2012 2012

Explanation / Answer

Under the percentage of completion method of accounting the gross profit in each year is as follows: 2010 750,001; 2011 328310.48; 2012 - $321,689.52 Under the completed contract accounting method assuming this is for home construction the results would be as follows: 2010 - $0; 2011 - $0, 2012 $1,400,000. On percentage of completion you are taking 60% of estimated 62.5% of the total cost times $6 million less $1,500,000. Same process for other years except the percentage takes into account the increased cost estimate.

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