# Percentage of Completion & Contract Completed Method

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P18-6 (Long-Term Contract with Interim Loss) On March 1, 2007, Franziska van Almsick Construction
Company contracted to construct a factory building for Sandra Volker Manufacturing Inc. for a total
contract price of \$8,400,000. The building was completed by October 31, 2009. The annual contract costs
incurred, estimated costs to complete the contract, and accumulated billings to Volker for 2007, 2008, and
2009:

2007 2008 2009
Contract costs incurred during the year \$3,200,000 \$2,600,000 \$1,450,000
Estimated costs to complete the contract
at 12/31 3,200,000 1,450,000 -0-
Billings to Volker during the year 3,200,000 3,500,000 1,700,000

Instructions

(a) Using the percentage-of-completion method, prepare schedules to compute the profit or loss to
be recognized as a result of this contract for the years ended December 31, 2007, 2008, and 2009.
(Ignore income taxes.)

(b) Using the completed-contract method, prepare schedules to compute the profit or loss to be
recognized as a result

This question has the following supporting file(s):

• P18-6.xls
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Solution Summary

The solution explains the calculation of gross profit under percentage of completion method and completed contract method

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• P18-6(1).xls

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• P18-6.xls

P18-6 (Long-Term Contract with Interim Loss) On March 1, 2007, Franziska van Almsick Construction
Company contracted to construct a factory building for Sandra Volker Manufacturing Inc. for a total
contract price of \$8,400,000. The building was completed by October 31, 2009. The annual contract costs
incurred, estimated costs to complete the contract, and accumulated billings to Volker for 2007, 2008, and
2009 are below:

2007 2008
Contract costs incurred during the year \$3,200,000 \$2,600,000 \$1,450,000 \$3,200,000 \$2,600,000
Estimated costs to complete the contract at 12/31 \$3,200,000 \$1,450,000
Billings to Volker during the year 3,200,000 3,500,000 1,700,000 \$3,200,000 \$3,500,000

Instructions
(a) Using the percentage-of-completion method, prepare schedules to compute the profit or loss to
be recognized as a result of this contract for the years ended December 31, 2007, 2008, and 2009.
(Ignore income taxes.)
(b) Using the completed-contract method, prepare schedules to compute the profit or loss to be
recognized as a result
2009
\$1,450,000
\$0
\$1,700,000