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Long-Term Contract with Overall Loss

P18-7 (Long-Term Contract with an Overall Loss) On July 1, 2007, Kyung-wook Construction Company
Inc. contracted to build an office building for Mingxia Corp. for a total contract price of $1,950,000.
On July 1, Kyung-wook estimated that it would take between 2 and 3 years to complete the building. On
December 31, 2009, the building was deemed substantially completed. Following are accumulated contract
costs incurred, estimated costs to complete the contract, and accumulated billings to Mingxia for
2007, 2008, and 2009.
At 12/31/07 At 12/31/08 At 12/31/09
Contract costs incurred to date $ 150,000 $1,200,000 $2,100,000
Estimated costs to complete the contract 1,350,000 800,000 -0-
Billings to Mingxia 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, 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 of this contract for the years ended December 2007, 2008, and 2009. (Ignore
income taxes.)

Solution Preview

P18-7 (Long-Term Contract with an Overall Loss) On July 1, 2007, Kyung-wook Construction Company
Inc. contracted to build an office building for Mingxia Corp. for a total contract price of $1,950,000.
On July 1, Kyung-wook estimated that it would take between 2 and 3 years to complete the building. On
December 31, 2009, the building was deemed substantially completed. Following are accumulated contract
costs incurred, estimated costs to complete the contract, and accumulated billings to Mingxia for
2007, 2008, and 2009.
At At At
12/31/07 12/31/08 12/31/09
Contract costs incurred to date $ 150,000 $1,200,000 $2,100,000
Estimated costs to complete the contract 1,350,000 800,000 -0- ...

Solution Summary

The long-term contract with overall loss is examined for Kyung-wook Construction Company, Inc. The estimated cost to complete a contract is determined.

$2.19