Question

On June 15, 2020, Lion Construction signed a $ 360,000 contract to build a small building....

On June 15, 2020, Lion Construction signed a $ 360,000 contract to build a small building. Lion estimated that the total cost would be $ 320,000. Construction started immediately because the required completion date was August 31, 2021. Lion’s relevant data relating to this construction project were as follows:

     2020             2021

Actual costs incurred $ 120,000      $ 204,000

Estimated costs to complete 200,000               -0-

Progress billings 112,000        248,000

Collections 110,000        250,000

Instructions (show all supporting calculations)

Calculate how much gross profit that Lion should recognize each year, assuming:

       Method Used For 2020            For 2021

a) Completed contract

b) Percentage-of-completion

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Answer #1

Calculate gross profit : Completed contract

2020 2021
Revenue 0 360000
Cost 0 120000+204000 = -324000
Gross profit 0 36000

Calculate gross profit: Percentage completion

2020 2021
Actual costs incurred 120000 204000
Estimated cost to complete 200000 0
Percentage completed 37.50% 100%
Revenue recognized 135000 360000
Actual cost -120000 -324000
Gross profit 15000 36000
In previous year 0 -15000
Gross profit Current year 15000 21000
0 0
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