(Recognition of Profit on Long Term Contract) Shanahan Construction Company has entered into a contract beginning January 1, 2012, to build a parking complex. It has been estimated that the complex will cost $600,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $900,000. The following data pertain to the construction period.
|
2012 |
2013 |
2014 |
|
|
Costs to date |
$270,000 |
$450,000 |
$610,000 |
|
Estimated costs to complete |
330,000 |
150,000 |
–0– |
|
Progress billings to date |
270,000 |
550,000 |
900,000 |
|
Cash collected to date |
240,000 |
500,000 |
900,000 |
Instructions
(a) Using the percentage of completion method, compute the estimated gross profit that would be recognized during each year of the construction period.
(b) Using the completed contract method, compute the estimated gross profit that would be recognized during each year of the construction period.