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Homework answers / question archive / Riverbed Construction Company has entered into a contract beginning January 1, 2020, to build a parking complex
Riverbed Construction Company has entered into a contract beginning January 1, 2020, to build a parking complex. It has been estimated that the complex will cost $598,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $897,000. The following data pertain to the construction period. Costs to date Estimated costs to complete Progress billings to date Cash collected to date 2020 $275,080 322,920 272,000 242,000 2021 $412,620 185,380 545,000 495,000 2022 $607,000 -0- 897,000 897,000 (a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period. (If answer is 0, please enter 0. Do not leave any fields blank.) Gross profit recognized in 2020 $ Gross profit recognized in 2021 $ $ $ Gross profit recognized in 2022 $ (b) Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period. (If answer is 0, please enter 0. Do not leave any fields blank.) Gross profit recognized in 2020 $ $ 0 Gross profit recognized in 2021 $ Gross profit recognized in 2022 $
a. The percentage of completion method is used for longer-term projects and recognizes revenue and expenses as a percentage of the project’s completion during the period. Computation of Gross profit recognized in different years will be as follows:
b. The completed contract method postpones the reporting of income and expenses, till a contract is completed. Hence, all the profit of the contract will be recognized in the year in which it is completed i.e. 2023.
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