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
Estimated costs to 600,000 165,000 -0-
Billings to date 300,000 900,000 1,500,000
Collections to date 270,000 810,000 1,425,000
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.
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 ...