Brady Construction Company contracted to build an apartment complex for a price
ID: 2426005 • Letter: B
Question
Brady Construction Company contracted to build an apartment complex for a price of $4800000. Construction began in 2013 and was completed in 2015. Below are two different, independent scenarios for the project. For each scenario calculate the gross profit to be recognized in 2013, 2014 and 2105 using the percentage of completion method. Calculate the gross profit to be recognized in 2013, 2014 and 2015 using the completed contract method. Costs Incurred During Year Estimated Costs to Complete (as of year-end) to Complete (es 2014 2015 2013 1800000 1080000 2880000 1692000 1332000 2304000 2014 2015 1080000 9720000 Scenario 2013 720000 2 576000Explanation / Answer
Situation 1
Particulars
2013
2014
2015
Contract Price
4,800,000
4,800,000
4,800,000
Actuals costs to date
720,000
2,520,000
3,600,000
Estimated costs to complete
2,880,000
1,080,000
-
Total estimated Costs
3,600,000
3,600,000
3,600,000
Estimated Gross profit
1,200,000
1,200,000
1,200,000
Gross profit recognized under % completion method:
% Completion :
2013:$720,000/3,600,000 =20%
2014: $2,520,000/3,600,000 =70%,
2015: $3600,000/3,600,000 =100%
Gross Profit:
2013
$1,200,000 x 20%=$240,000
2014
$1,200,000 x 70%=$840,000( two years profit)
Current year Profit: $840,000-$240,000=$600,000
2015
Current year profit= Total profit – Previous year’s profit
$1,200,000-$840,000=$360,000
Situation 2
Particulars
2013
2014
2015
Contract Price
4,800,000
4,800,000
4,800,000
Actuals costs to date
576,000
2,268,000
3,600,000
Estimated costs to complete
2,304,000
972,000
-
Total estimated Costs
2,880,000
3,240,000
3,600,000
Estimated Gross profit
1,920,000
1,560,000
1,200,000
Gross profit recognized under % completion method:
% Completion :
2013:$576,000/2,880,000 =20%
2014: $2,268,000/3,240,000 =70%,
2015: $3600,000/3,600,000 =100%
Gross Profit:
2013
$1,200,000 x 20%=$240,000
2014
$1,200,000 x 70%=$840,000( two years profit)
Current year Profit: $840,000-$240,000=$600,000
2015
Current year profit= Total profit – Previous year’s profit
$1,200,000-$840,000=$360,000
Situation 1
Particulars
2013
2014
2015
Contract Price
4,800,000
4,800,000
4,800,000
Actuals costs to date
720,000
2,520,000
3,600,000
Estimated costs to complete
2,880,000
1,080,000
-
Total estimated Costs
3,600,000
3,600,000
3,600,000
Estimated Gross profit
1,200,000
1,200,000
1,200,000
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