Question

Required information SB Problem The following information applies to the questions displayed below.) Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,800,000. The project was begun in 2017 and completed in 2018. Cost and other data are presented below. Costs incurred during the year Estimated costs to complete Billings during the year Cash collections during the year 2017 2018 $ 450,000 $1,108, eee 1,050,000 400,000 1,400,000 300,000 1,500,000 Problem 5-284 Assume that Beavis recognizes revenue on this contract over time according to percentage of completion. Required: Compute the amount of gross profit recognized during 2017 and 2018. Amount of gross profit recognized in 2017 Amount of gross profit recognized in 2018 O fil romanized in 2018 $ 250.000

Answer 1

	Compuation of gross profit to be recognized each year under percentage completion method:-
	% complete             =		Actual Cost to date
			Estimated Total Cost
	Cost incurred during the year	+	Cost incurred in previous years		=	Actual Cost to date
2017	$                                             450,000	+	$                                 -		=	$         450,000
2018	$                                          1,100,000	+	$                        450,000		=	$     1,550,000
	Actual Cost to date	+	Estimated remaining costs		=	Estimated Total Cost
2017	$                                             450,000	+	$                             1,050,000		=	$     1,500,000
2018	$                                          1,550,000	+	$                                           -		=	$     1,550,000
	Choose numerator	÷	Choose denominator		=	% complete to date
	Actual Cost to date	÷	Estimated Total Cost
2017	$                                             450,000	÷	$                             1,500,000		=	30.00%
2018	$                                          1,550,000	÷	$                             1,550,000		=	100.00%
	Contract Price	×	% complete to date		=	Construction revenue
2017	$                                          1,800,000	×	30.00%		=	$540,000
2018	$                                          1,800,000	×	100.00%		=	$1,800,000
2017
			To date	Recognized in prior years	Recognized in 2017
Construction revenue			$      540,000	$                -	$                              540,000
Construction expense			$      450,000	$                -	$                              450,000
Gross Profit (loss)			$         90,000	$                -	$                                90,000
2018
			To date	Recognized in prior years	Recognized in 2018
Construction revenue			$   1,800,000	$     540,000	$                          1,260,000
Construction expense			$   1,550,000	$     450,000	$                          1,100,000
Gross Profit (loss)			$      250,000	$       90,000	$                              160,000
	Amount of gross profit recognized in 2017			$       90,000
	Amount of gross profit recognized in 2018			$     160,000

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