Question

On January 1, Year 1, a contractor began work on a $3.2 million construction contract that is expected to be completed in 3 years. The contractor concludes that it is appropriate to recognize revenue over time using the input method based on costs incurred (cost-to-cost method). At the inception date, the estimated cost of construction was $2.4 million. The following data relate to the actual and expected construction costs:

	Year 1	Year 2	Year 3
Cost incurred	$720,000	$1,170,000	$1,110,000
Expected future costs	$1,680,000	$810,000	$0

For this long-term construction contract, the contractor needs to calculate the estimated dollar values of the revenue and gross profit (loss) to be recognized each year.

Complete the contractor's long-term construction contract using the information above. Enter the appropriate amounts in the associated cells. Indicate losses by using a leading minus (-) sign. Round all amounts to the nearest dollar. If no entry is necessary, enter a zero (0).

	Revenue	Gross Profit (loss)
Year 1
Year 2
Year 3

Answer 1

Solution:

Computation of % of completion, revenue recognition and Gross Profit
Year	Actual cost incurred (A)	Total cost incurred till date (B)	Total estimated Cost ( C )	% of completion (D) (B/C)	Contract Price (E)	Total Revenue to be recoganized (F) (E * D)	Revenue for current period (G)	Gross Profit (H) (G-A)
1	$720,000	$720,000	$2,400,000	30.00%	$3,200,000	$960,000	$960,000	$240,000
2	$1,170,000	$1,890,000	$2,700,000	70.00%	$3,200,000	$2,240,000	$1,280,000	$110,000
3	$1,110,000	$3,000,000	$3,000,000	100.00%	$3,200,000	$3,200,000	$960,000	-$150,000