Question

On January 1, Year 1, Cumulus Contracting, Inc., entered into an agreement to construct a building on the customer's land. The project was expected to take 3 years and involve a total cost of $6,000,000. The client has agreed to pay Cumulus $9,000,000 upon completion of the building. Cumulus determined that revenue from this contract is recognized over time. Cumulus uses the input method based on costs incurred to measure progress toward completion of the contract. The following information about the costs of the project are taken from the accounting records of Cumulus. Year 1 Year 2 Year 3 Costs incurred during year $1,000,000 $3,000,000 $4,000,000 Expected future costs $5,000,000 $4,000,000 $0 Enter the appropriate amounts in the designated cells below. Enter all amounts as positive values. Round all amounts to the nearest whole number. If no entry is necessary, enter a zero (0). Gross profit for year Answer 1. Year 1 2. Year 2 3. Year 3

Answer 1

	Percentage completion method	Year 1	Year 2	Year 3
	Cost incurred in till previous year	0	1000000	4000000
ADD	Cost incurred during the year	1000000	3000000	4000000
	Total cost incurred till date	1000000	4000000	8000000
ADD	Estimated cost to be incurred	5000000	4000000	0
	Total estimated cost to be incurred	6000000	8000000	8000000
	Percentage of completion (A)	17%	50.00%	100%
	(cost incurred till date /total estimated cost )
	Total revenue (B)	9000000	9000000	9000000
	Total revenue recognized (A *B)	1500000	4500000	9000000
Less	Revenue recognized in previous year	0	1500000	4500000
	revenue recognized in current year	1500000	3000000	4500000
		Year 1	Year 2	Year 3
	Revenue	1500000	3000000	4500000
Less	Cost incurred	1000000	3000000	4000000
	Gross profit	500000	0	500000