Percentage of Completion & Contract Completed Method

See attached file.

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

Attachments

Solution Summary

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