Question

During 2019, Almon Inc. started a construction job with a contract price of $8000. The job was completed in 2019 and information for the three years of construction is as follows:

	2019	2020	2021
TOTAL costs incurred to date (ie sum of all costs, for all years, incurred at the end of the year)	$2,000	$4,500	$7,600
Estimated costs to complete (as estimated at year end)	5,000	2900	-0-
Billings to date	2,200	6,000	8,000
Collections to date	1,600	4,800	7,500

Required:

Using the PERCENTAGE-OF-COMPLETION (cost-to-cost) method:

Show and label all calculations.

(a)	Calculate the total percentage complete for the contract at the end of each year. Round the percentage complete to two decimal places (ie. 12.34%).
(b)	Calculate the amount of gross profit that should be recognized each year on the contract.
(c)	What would be the value of the Contract Asset/Liability account at December 31, 2019 (and indicate if it is in an asset or liability position)?

Answer 1

(a) Total percentage complete at the end of 2019 =28.57%

2020=60.81%

2121=100%

(b) Gross profit recognized at the end of 2019=285.60

2020=79.20

2021=35.20

(c) There will be no assets/liabilities as the project is already completed