Question 1: In 2011, Fayette Engineering entered into an agreement to construct an office building at a contract price of $5,100,000. Construction data were as follows:
2011 2012 2013
Construction costs
incurred $ 750,000 $2,700,000 $ 630,000
Estimated costs to
complete 3,000,000 862,500 --
Progress billings 570,000 3,600,000 930,000
Collections from client 450,000 3,300,000 1,350,000
Prepare the necessary entries for 2011, assuming the firm uses the percentage of completion method:
Question 2: Kamus Medical Center uses the cost recovery method of accounting for recognizing revenue. The following information is available:
2011 2012 2013
Sales ................... $45,000 $60,000 $85,000
Gross profit percentage 37% 41% 40%
Cash collections:
2011 ................. $24,000 $19,000 $ 2,000
2012 ................. 40,000 17,000
2013 ................. 53,000
Determine the amount of gross profit to be recognized for 2011 and 2012