2. (15 points) Beavis Construction Company was the low bidder on a construction

Question

2. (15 points) Beavis Construction Company was the low bidder on a construction projedt to build an earthen dam for $1,800,000. The project was begun in 2015 and completed in 2016. Cost and other data are presented below: 2015 2016 Costs incurred during the year Estimated costs to complete Billings during the year Cash collections during the year $450,000$%1,100,000 1,050,000 00,0001,400,000 300,000 1,500,000 Assume that Beavis recognizes revenue on this contract over time according to percentage of completion.

Explanation / Answer

Recognition of revenue under the percentage of completion method:

2015:

Costs incurred to date = $ 450,000.

Estimated total contract costs = $ 450,000 + $ 1,050,000 = $ 1,500,000

Percentage of completion = $ 450,000 / $ 1,500,000 = 30 %

Contract revenue = $ 1,800,000.

Gross profit to be to recognized in 2015 = $ ( 1,800,000 - 1,500,000) x 30% = $ 90,000.

2016:

Total contract revenue = $ 1,800,000.

Total contract costs = $ 450,000 + $ 1,100,000 = $ 1,550,000.

Total gross profit on the contract = $ ( 1,800,000 - 1,550,000) = $ 250,000.

Gross profit to be recognized in 2016 = $ 250,000 - $ 90,000 ( already recognized in 2015) = $ 160,000.

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