During 2017, the Samuelson Construction Company began construction on an office

Question

During 2017, the Samuelson Construction Company began construction on an office building for the Cty of Philadelphia. The contract price is $25 million and the buikding will take about 18 months to complete. Completion is scheduled for early in 2018. The company's fiscal year ends on December 31 The folowing s a year-by-year recap of construction costs incurred and the estimated costs to complete the project as of the end of each year. Progress billings and cash collections are also indicated. 2017 20182019 Contract amount (selling pricc) Construction costs incurred during the year Construction costs incurred in prior years $25,000,000 $25,000,000 $25,000,000 $4,000,000 $14,000,000 $5,000,000 $ 0$ 4,000,000 $18,000,000 Estinated costs to complete the project (determined at year-end) $16,000,000 S 6,000,000 S 0 6-11 Calculate the Gross Profitor Loss to be recognized in each of the three years applying the following methods: 2017 2018 Percentage-of-completion method: 6. Completed contract method: 9. 10.

Explanation / Answer

Percentage of completion method:

Completed contract method:

No profit or loss recognised till contract is complete, hence for 2017, 2018 gross profit/l0ss= 0

for 2019 Gross profit= contract price - total costs incurred= 25000000 - 23000000= 2000000

2017 2018 2019 Revenue for the year            50,00,000         1,37,50,000            62,50,000 Costs incurred during the year            40,00,000         1,40,00,000            50,00,000 Gross profit/ (loss)            10,00,000             -2,50,000            12,50,000 Costs incurred during the year            40,00,000         1,40,00,000            50,00,000 Costs incurred in prior years                            -              40,00,000         1,80,00,000 A Total costs icurred            40,00,000         1,80,00,000         2,30,00,000 Total costs: Costs incurred in prior years                            -              40,00,000         1,80,00,000 costs incurred during the year            40,00,000         1,40,00,000            50,00,000 estimated cost to complete         1,60,00,000            60,00,000                            -   B Total contract costs         2,00,00,000         2,40,00,000         2,30,00,000 C=A/B *100 Percentage of completion 20% 75% 100% D Contract amount         2,50,00,000         2,50,00,000         2,50,00,000 E=C*D Revenue earned            50,00,000         1,87,50,000         2,50,00,000 Less: revenue recognised in earlier years                            -              50,00,000         1,87,50,000 Revenue for the year            50,00,000         1,37,50,000            62,50,000

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