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McCombs Contractors received a contract to construct a mental health facility for $1,800,000. Construction was begun in 2017 and completed in 2018. Cost and other data are presented below:                                                                2017                 2018Costs incurred during the year         $   450,000      $1,100,000Estimated costs to complete               1,050,000                     0Billings during the year                         400,000        1,400,000Cash collections during the year           300,000        1,500,000 Assume that McCombs recognizes revenue on this contract over time according to percentage of completion. Compute the amount of gross profit recognized during 2017 and 2018.   20172018Contract price  Actual costs to date             Estimated costs to complete  Total estimated costs  Total Gross profit recognized

Question

McCombs Contractors received a contract to construct a mental health facility for $1,800,000. Construction was begun in 2017 and completed in 2018. Cost and other data are presented below:

                                                                2017                 2018

Costs incurred during the year         $   450,000      $1,100,000

Estimated costs to complete               1,050,000                     0

Billings during the year                         400,000        1,400,000

Cash collections during the year           300,000        1,500,000


 

Assume that McCombs recognizes revenue on this contract over time according to percentage of completion. 

Compute the amount of gross profit recognized during 2017 and 2018. 

 

 2017

2018

Contract price

   

Actual costs to date

      

       

Estimated costs to complete

 

 

Total estimated costs

 

 

Total Gross profit recognized

 

 

check_circleAnswer
Step 1

Compute the percentage of completion as shown below:

Total estimated costs to complete Cost incurred in 2017 + Cost incurred in 2018
= S450,000 S1100,000
=$1,550,000
Particulars
2017
2018
Cost incurred during the year
(A)(Cumulative)
Estimated costs to complete (B) S15,50,000| S15,50,000|
|Percentage of completion (A-B)
S4,50,000 S15,50,000|
100%
29%
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Total estimated costs to complete Cost incurred in 2017 + Cost incurred in 2018 = S450,000 S1100,000 =$1,550,000 Particulars 2017 2018 Cost incurred during the year (A)(Cumulative) Estimated costs to complete (B) S15,50,000| S15,50,000| |Percentage of completion (A-B) S4,50,000 S15,50,000| 100% 29%

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Step 2

Compute revenue recognized under percentage of co...

Formula
Revenue recognized Contract price x Percentage of completion
Revenue recognized for 2017 $1,800,000 x 29%
S522,000
Revenue recognized for 2018
recognition
(Contract price
Percentage of completion) previous
($1,800,000 x 100%) - $522,000
= $1,278,000
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Formula Revenue recognized Contract price x Percentage of completion Revenue recognized for 2017 $1,800,000 x 29% S522,000 Revenue recognized for 2018 recognition (Contract price Percentage of completion) previous ($1,800,000 x 100%) - $522,000 = $1,278,000

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