On March 1, 2020, Pechstein Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,400,000. The building was completed by October 31, 2022. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2020, 2021, and 2022 are given below. 202020212022Contract costs incurred during the year$2,880,000$2,230,000$2,190,000Estimated costs to complete the contract at 12/31 3,520,000 2,190,000–0–Billings to Fabrik during the year 3,200,000 3,500,000 1,700,000Instructionsa. Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2020, 2021, and 2022. (Ignore income taxes.)b. Using the completed-contract method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2020, 2021, and 2022. (Ignore incomes taxes.)

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Answered: On March 1, 2020, Pechstein…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 26E

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Instructions

a. Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2020, 2021, and 2022. (Ignore income taxes.)

b. Using the completed-contract method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2020, 2021, and 2022. (Ignore incomes taxes.)

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	2020	2021	2022
Contract costs incurred during the year	$2,880,000	$2,230,000	$2,190,000
Estimated costs to complete the contract at 12/31	3,520,000	2,190,000	–0–
Billings to Fabrik during the year	3,200,000	3,500,000	1,700,000