Question

Novak Construction Company uses the percentage-of-completion method of accounting. In 2020, Novak began work under contract #E2-D2, which provided for a contract price of $2,170,000. Other details follow:

		2020		2021
Costs incurred during the year		$615,810		$1,422,000
Estimated costs to complete, as of December 31		963,190		–0–
Billings during the year		426,000		2,170,000
Collections during the year		343,000		1,520,000

(a)

New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is incorrect.

What portion of the total contract price would be recognized as revenue in 2020? In 2021?

Revenue recognized in 2020		$
Revenue recognized in 2021		$

Answer 1

Solution

Gross profit recognized in 2020	$      230,490
Gross profit recognized in 2021	$      (98,300)

Working

		2020	2021
A	Contract Price	$ 2,170,000	$ 2,170,000
B	Cost Incurred to Date	$ 615,810	$ 2,037,810
C	Estimated cost yet to be incurred to complete the contract	$ 963,190	$ 0
D = B+C	Total Cost	$ 1,579,000	$ 2,037,810
E = (D/B) x 100	% of Completion	39%	100%
F = A x E	Revenue to date	$ 846,300	$ 2,170,000
G	Revenue of Previous year	$ 0	$ 846,300
H = F - G	Net Revenue this year	$ 846,300	$ 1,323,700
I	Cost to date	$ 615,810	$ 2,037,810
J	Cost to date of previous year	$ 0	$ 615,810
K = I - J	Net Cost for the year	$ 615,810	$ 1,422,000
L = H - K	Gross Profits	$ 230,490	-$ 98,300