On Mareh 1, 2014, Pechstein Construction Company contracted to construct a facto
ID: 2458752 • Letter: O
Question
On Mareh 1, 2014, Pechstein Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $9,576,000. The building was completed by October 31, 2016. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2014, 2015, and 2016 are given below. Using the percentage-of-completion method, 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.) (Enter loss amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Using the completed-contract method, 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.) (Enter loss amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)Explanation / Answer
(a) Computation of Recognizable Profit/Loss
Percentage-of-Completion Method
2014
Costs to date (12/31/14)...................................................................... $3,283,200
Estimated costs to complete............................................................... 4,012,800
Estimated total costs................................................................. $7,296,000
Percent complete ($3,283,200 ÷ $7,296,000).................................... 45%
Revenue recognized ($9,576,000 X 45%)......................................... $4,309,200
Costs incurred.................................................................................... 3,283,200
Profit recognized in 2014................................................................... $ 1,026,000
2015
Costs to date (12/31/15)
($3,283,200 + $2,496,600).............................................................. $5,825,400
Estimated costs to complete............................................................... 2,496,600
Estimated total costs................................................................. $8,322,000
Percent complete ($5,825,400 ÷ $8,322,000).................................... 70%
Revenue recognized in 2015 ($9,576,000 X 70%) – $4,309,200 $2,394,000
Cost incurred in 2015 2,496,600
__________
Loss recognized in 2015..................................................................... $ (102,600)
2016
Total revenue recognized.................................................................. $5,825,400
Total costs incurred........................................................................... 8,322,000
Total profit on contract..................................................................... 2,496,600
Deduct profit previously recognized
($1,026,000 – $102,600).................................................................. 9,23,400
Profit recognized in 2016................................................................... $ 1,573,200*
(b) Computation of Recognizable Profit/Loss
Completed-Contract Method
2014—NONE
2015—NONE
2016
Total revenue recognized.................................................................. $5,825,400
Total costs incurred........................................................................... 8,322,000
Profit recognized in 2012................................................................... $2,496,600
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.