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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Newberg Construction Corp. contracted to construct a building for $400,000. Construction began in 2019 and was completed in 2020. Data relating to the contract arc as follows:

Chapter 17, Problem 26E, Newberg Construction Corp. contracted to construct a building for 400,000. Construction began in

Newberg determined that its performance obligation was satisfied over time.

Required:

For the years ended December 31, 2019 and 2020, respectively, how much gross profit should Newberg report?

To determine

State the amount of gross profit reported, for the years ended December 31, 2019 and December 31, 2020.

Explanation

Contract: Contract is an agreement among two parties or more parties which includes enforceable obligations and rights. A contract can be “written oral or implied” by ordinary business practices.

Compute the amount of gross profit during the years 2019 and 2020:

Particulars20192020
Construction costs incurred to date $200,000 $310,000  
Estimated costs to complete $100,000  
Total estimated costs$300,000$310,000
Percent complete (Construction costs incurred to dateTotal estimated costs)66.667%100%
Estimated profit on contract$100,000(1)$90,000
Gross profit to be recognized$66,667(2)$23,333

Table (1)

Therefore, the amount of gross profit recognized during 2019 is $66,667 and during 2020 is $23,333.

Note: $310,000($200,000+$110,000).

Working notes:

(1)Calculate the amount of estimated profit on contract for the year 2020:

Estimated profit on contract for the year 2020}=[Contractprice(Cons

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