Percentage of Completion Accounting
The Quality Construction Company was the low bidder on an office building construction contract. The contract bid was $7,000,000, with an estimated cost to complete the project of $6,000,000.The contract period was 34 months starting January 1, 2007. The company uses the cost to cost method of estimating earnings. Because of changes requested by the customer, the contract price was adjusted downward to $6,700,000 on January 1, 2008. A record of construction activities for the years 2007–2010 is as follows:
|
|
Actual Cost— |
Progress |
Cash |
|
Year |
Current Year |
Billings |
Receipts |
|
2007 |
$2,500,000 |
$2,100,000 |
$1,800,000 |
|
2008 |
3,300,000 |
3,100,000 |
3,000,000 |
|
2009 |
410,000 |
1,300,000 |
1,000,000 |
|
2010 |
|
|
700,000 |
The estimated cost to complete the contract as of the end of each accounting period is:
|
2007 |
$3,500,000 |
|
2008 |
400,000 |
|
2009 |
0 |
Calculate the gross profit for the years 2007–2009 under the percentage of completion method of revenue recognition.