P18-2.
(Recognition of Profit on Long-Term Contract)
3
4
Shanahan Construction Company has entered into a contract beginning January 1, 2014, to build a parking complex. It has been estimated that the complex will cost $600,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $900,000. The following data pertain to the construction period.
2014
2015
2016
Costs to date
$270,000
$450,000
$610,000
Estimated costs to complete
330,000
150,000
-0-
Progress billings to date
270,000
550,000
900,000
Cash collected to date
240,000
500,000
900,000
Instructions
(a)
Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period.
(b)
Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period.