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Jacks Contractors received a contract to construct a mental health facility for $2,500,000
Jacks Contractors received a contract to construct a mental health facility for $2,500,000.
Construction was begun in 2005 and completed in 2006. Cost and other data are presented below:
2005 2006
Costs incurred during the year $1,500,000 $1,300,000
Remaining estimated costs to complete 1,200,000 0
Billings during the year 1,200,000 1,300,000
Cash collections during the year 1,000,000 1,500,000
Assume that Jacks uses the percentage-of-completion method for revenue recognition.
Compute the amount of gross profit recognized during 2005 and 2006.
Expert Solution
2005
The costs incurred are 1,500,000 and the total cost to complete the project are 1,500,000+1,200,000=2,700,000. Since there is a loss as the total income from the contract is 2,500,000, the gross loss of 200,000 will be recognized in 2005.
2006
The additional costs incurred result in loss of 100,000 which will be recognized in 2006
Year 2005 2006
Gross Profit (200,000) (100,000)
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