Long-Term Contracts Newberg Construction Corporation contracted to construct a b
ID: 2486117 • Letter: L
Question
Long-Term Contracts
Newberg Construction Corporation contracted to construct a building for $400,000. Construction began in 2017 and was completed in 2018. Data relating to the contract are as follows:
Newberg determined that its performance obligation was satisfied over time.
Required
Newberg uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2017 and 2018, respectively, how much gross profit should Newberg report? If required, round percentage completed to one decimal place. When required, round dollar amounts to the nearest dollar.
Year Ended December 31, 2017 2018 Costs incurred $200,000 $110,000 Estimated costs to complete 100,000 —Explanation / Answer
Contract price
400,000
400,000
Year
2017
2018
Cost incurred
200,000
110,000
Estimated cost to complete
100,000
----
Total cost incurred
300,000
110,000
Percentage complete
66.7%
100%
Estimated profit
266,800*
133,200
Gross profit to be recognized
66,800
23,200
Estimated profit = 400,000*66.7% = 266,800
2018 = 400,000 – 266,800 recognised in 2018 = $133,200
Gross profit(2017) = 266,800 – 200,000 cost = 66,800
(2018) = 133,200 – 110,000 = $23,200
Contract price
400,000
400,000
Year
2017
2018
Cost incurred
200,000
110,000
Estimated cost to complete
100,000
----
Total cost incurred
300,000
110,000
Percentage complete
66.7%
100%
Estimated profit
266,800*
133,200
Gross profit to be recognized
66,800
23,200
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