Percentage of Completion Method for a Bridge
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Howard Construction Co. contracted to build a bridge for $3,000,000. Construction began in 2004 and was completed in 2005. Data relating to the construction are:
2004 2005
???????? ????????
Costs incurred $990,000 $825,000
Estimated costs to complete 810,000 ??
Howard uses the percentage-of-completion method.
INSTRUCTIONS
(a) How much revenue should be reported for 2004? Show your
computation.
(b) Make the entry to record progress billings of $1,000,000 during
2004.
(c) Make the entry to record the revenue and gross profit for 2004.
(d) How much gross profit should be reported for 2005? Show your
computation.
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Solution Summary
The solution explains the calculations under the percentage of completion method
Solution Preview
(a) To find out the revenue, we first calculate the percent complete. Percent complete = Costs incurred till date/Total cost to complete.
Cost incurred till date = 990,000
Total cost to complete the project = 990,000+810,000=1,800,000
Percent Complete = 990,000/1,800,000= 55%
Revenue in 2004 = 3,000,000X55%=1,650,000
(b) To record the progress billing, we debit the ...
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