Percentage of completion method-completed contract method


Problem:

On March 1, 2007, Winter Company, entered into a contract to build an apartment building. It is estimated that the building will cost $2,000,000 and will take 3 years to complete. The contract price was $3,000,000. The following information pertains to the construction period.

                                                2004           2005          2006
Costs incurred to date           $600,000     $1,560,000    $2,100,000
Estimated costs to complete  1,400,000         390,000         -0-
Billings to date                     1,050,000       2,100,000     3,000,000
Collections to date                   950,000       1,950,000    2,750,000

Instructions:

(a) Compute the amount of gross profit to be recognized each year assuming the percentage-of completion method is used.

(b) Prepare all necessary journal entries for 2005.

(c) Compute the amount of gross profit to be recognized each year assuming the completed-contract method is used.

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Accounting Basics: Percentage of completion method-completed contract method
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