Question

On February 1, 2020, Oriole Contractors agreed to construct a building at a contract price of $3,130,000. The total estimated construction costs would be $1,555,000 and the project would be finished in 2022. Information relating to the costs and billings for this contract is as follows:

		2020			2021			2022
Total costs incurred to date		$	544,250		$	903,650		$	2,380,000
Estimated costs to complete			1,010,750			801,350			-0-
Customer billings to date			1,100,000			1,555,000			3,130,000
Collections to date			1,000,000			1,750,000			2,950,000

Calculate the gross profit / (loss) that should be recognized for 2020, 2021, and 2022 using the percentage completion method. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		2020		2021		2022
Gross profit / (loss)		$		$		$

Answer 1

Solution

	2020	2021	2022
Gross profit	$                551,250	$           204,000	$                  (5,250)

Working

Working		2020	2021	2022
A	Contract Price	$ 3,130,000	$ 3,130,000	$ 3,130,000
B	Cost Incurred to Date	$ 544,250	$ 903,650	$ 2,380,000
C	Estimated cost yet to be incurred to complete the contract	$ 1,010,750	$ 801,350	$ 0
D = B+C	Total Cost	$ 1,555,000	$ 1,705,000	$ 2,380,000
E = (D/B) x 100	% of Completion	35%	53%	100%
F = A x E	Revenue to date	$ 1,095,500	$ 1,658,900	$ 3,130,000
G	Revenue of Previous year	$ 0	$ 1,095,500	$ 1,658,900
H = F - G	Net Revenue this year	$ 1,095,500	$ 563,400	$ 1,471,100
I	Cost to date	$ 544,250	$ 903,650	$ 2,380,000
J	Cost to date of previous year	$ 0	$ 544,250	$ 903,650
K = I - J	Net Cost for the year	$ 544,250	$ 359,400	$ 1,476,350
L = H - K	Gross Profits	$ 551,250	$ 204,000	-$ 5,250