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Recognition of Profits on long term contracts

I am studying for a test that will have the following type of problems listed. I would like to use these as examples to follow in the course book. I pulled up similar topics on the internet but it does not apply to academics

4. (Recognition of Profit on Long-Term Contracts)

During 2004 Pierson Company started a construction job with a contract price of $1,500,000. The job was completed in 2006. The following information is available.

2004 2005 2006

Costs incurred to $400,000 $935,000 $1,070,000
date
Estimated costs to 600,000 165,000 -0-
complete
Billings to date 300,000 900,000 1,500,000
Collections to date 270,000 810,000 1,425,000

Instructions
a. Compute the amount of gross profit to be recognized each year assuming the
percentage-of-completion method is used.
b. Prepare all necessary journal entries for 2005.
c. Compute the amount of gross profit to be recognized each year assuming the
completed-contract method is used.

Solution Preview

Hi there,

Please see the attached Excel spreadsheet.

Percentage of Completion Method--under the percentage of completion method the taxpayer recognizes a portion of the contract price as income each taxable year based on ...

$2.19