On March 1, 2014, Pechstein Construction Company contracted to construct a facto

Question

On March 1, 2014, Pechstein Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,400,000. The building was completed by October 31, 2016. The annual contract costs incurred, estimated cost to complete the contract, and accumulated billings to Fabrik for 2014, 2015, and 2016 are given below. 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, 2014, 2015, and 2016. (Ignore income taxes.) 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, 2014, 2015, and 2016. (Ignore incomes taxes.)

Explanation / Answer

Total contract price    8,400,000 Estimated total cost: 2014       3,520,000 2015       2,230,000 2016                      -      5,750,000 Total Gross profit of project    2,650,000 2014 percentage complete= total cost till date/total estimated cost of the project 2880000/5750000 0.50 gross profit earned in 2014= .5*2650000       1,325,000 2015 (2880000+2230000)/5750000 0.89 gross profit earned in 2015= (.89*2650000)-1325000       1,033,500 2016 (2880000+2230000+2190000)/5750000 1.27 (1.27*2650000)-1325000-1033500       1,007,000 b) - profit or loss would be booked on completion of the project' completed contact method 2014 2015 2016 contract price                      -                     -      8,400,000 Total cost incurred                      -                     -      7,300,000 Profit/(loss)                      -                     -      1,100,000

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