Problem 1: McNeil Construction Company is involved in a long-term construction contract to build an office building. The estimated cost is $30 million and the contract price is $38 million. Other information follows:
Office Building
Cash Collection Actual Costs Incurred
2004 $ 6,000,000 $ 4,500,000
2005 $ 8,000,000 $ 6,000,000
2006 $ 12,500,000 $ 12,000,000
2007 $ 11,500,000 $ 7,500.000
The projected is completed in 2007 and all cash to be received from eh contract has been received.
How would a schedule look if you were determining the gross profit in each year for the long term construction contracting using the percentage of completion method?
Problem 2) Westphal Construction sold to Walker Management Company apartments it had constructed. The sales price was $2.5 million. Westphal's cost to construct the apartments was $1.6 million. Westphal appropriately uses the installment method. Additional information:
Cash Collected
2004 $ 800,000
2005 $ 1,200,000
2006 $ 500,000
A) What would the gross profit for each year using the installment method.
B) Assuming the construction costs were $1.75 million what would A) look like.