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On July 1, 2010, Torvill Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of \$1,900,000. On July 1, Torvill estimated that it would take between 2 and 3 years to complete the building. On December 31, 2012, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Gumbel for 2010, 2011, and 2012.

At At At
12/31/10 12/31/11 12/31/12
Contract costs incurred to date \$ 300,000 \$1,200,000 \$2,100,000
Estimated costs to complete the
contract 1,200,000 800,000 -0-
Billings to Gumbel 300,000 1,100,000 1,850,000

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, 2010, 2011, and 2012.(Ignore income taxes.)

(b) Using the completed-contract method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2010, 2011, and 2012. (Ignore income taxes.)

Solution Preview

Help with your homework study problem:
(A)

Percentage of completion method for 2010 profit:

Costs to current 300,000
Costs needed to complete project 1,200,000
Total costs 1,500,000
Percentage completed = 300,000/1,500,000 20%
Revenue = 1,900,000 x 20% 380,000
Costs 300,000
2010 profit = ...

Solution Summary

This solution answers the two following questions for Torvill Construction Company based on the information given in the scenario:

(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, 2010, 2011, and 2012.(Ignore income taxes.)

(b) Using the completed-contract method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2010, 2011, and 2012. (Ignore income taxes.)

\$2.49