Question

# Novak Construction Company uses the percentage-of-completion method of accounting. In 2020, Novak began work under contract...

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 \$

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