Construction Corporation has a contract to construct a building for $10,950,000. The building is controlled by the customer throughout the term of the contract. Total costs to complete the building were originally estimated at $8,850,000. Construction commenced on 4 February 20×5. Actual costs were in line with estimated costs for 20×5 and 20×6. In 20×7, actual costs exceeded estimated costs by $150,000.Total construction costs incurred in each year were as follows:20X5: $2,700,00020X6: $4,500,00020X7: $1,800,000Progress billings based on the amount of work completed were collected each year. Star Construction uses the percentage-of-completion method. The percentage-of-completion is based on costs incurred compared with estimated total costs of the project.Company also billed the client and collected the following paymentsYear Billings Payments Received20X5: $2,300,000 $2,100,00020X6: $4,900,000 $4,700,00020X7: $3,750,000 $4,150,000Required: Calculate Net income for the construction project for each of the three years:a) Completed contract method?20X5: $______________ 20X6: $__________________ 20X7____________________. b) Percentage-of-completion method? (basis: estimated costs to complete)20X5: $______________ 20X6: $__________________ 20X7____________________.
Construction Corporation has a contract to construct a building for $10,950,000. The building is controlled by the customer throughout the term of the contract. Total costs to complete the building were originally estimated at $8,850,000. Construction commenced on 4 February 20×5. Actual costs were in line with estimated costs for 20×5 and 20×6. In 20×7, actual costs exceeded estimated costs by $150,000.
Total construction costs incurred in each year were as follows:
20X5: $2,700,000
20X6: $4,500,000
20X7: $1,800,000
Progress billings based on the amount of work completed were collected each year. Star Construction uses the percentage-of-completion method. The percentage-of-completion is based on costs incurred compared with estimated total costs of the project.
Company also billed the client and collected the following payments
Year Billings Payments Received
20X5: $2,300,000 $2,100,000
20X6: $4,900,000 $4,700,000
20X7: $3,750,000 $4,150,000
Required: Calculate Net income for the construction project for each of the three years:
a) Completed contract method?
20X5: $______________ 20X6: $__________________ 20X7____________________.
b) Percentage-of-completion method? (basis: estimated costs to complete)
20X5: $______________ 20X6: $__________________ 20X7____________________.
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