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Percentage-of-completion accounting

Calculate the gross profit using the percentage-of-completion method for revenue recognition.

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The Construction Company was the low bidder on the office building construction contract. The contract bid was $7,000,000, with an estimated cost to complete the project of $6,000,000. The contract period was 34 months starting January 1, 2004. The company uses the cot-to-cost method of estmating earnings. Because of changes requested by the customer, the contract price was adjusted downward to $6,700,000 on January 1, 2005.

Construction activities for the years 2004-2007 as follows:
Year Actual cost -Current Year Progress Billings Cash Receipts
2004 2,500,000 2,100,000 1,800,000
2005 3,300,000 3,100,000 3,000,000
2006 410,000 1,300,000 1,000,000
2007 700,000

The estimated cost to complete the contract as of the end of each accounting period is:
2004 3,500,000
2005 400,000
2006 0

Calculate the gross profit for the years 2004-2006 under the percentage-of-completion method of revenue recognition.

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The steps in percentage of completion are:

1. Costs incurred to date /Most recent estimated total costs= ...

Solution Summary

The solution explains the calculation of gross profit using the percentage of completion method

$2.19