Problem:
The Construction Company was the low bidder on the office building construction contract. The contract bid was $7,000,000, with an estimated cost to complete the project of $6,000,000. The contract period was 34 months starting January 1, 2004. The company uses the cot-to-cost method of estmating earnings. Because of changes requested by the customer, the contract price was adjusted downward to $6,700,000 on January 1, 2005.
Construction activities for the years 2004-2007 as follows:
| Year |
Actual cost -Current Year |
Progress Billings |
Cash Receipts |
| 2004 |
2,500,000 |
2,100,000 |
1,800,000 |
| 2005 |
3,300,000 |
3,100,000 |
3,000,000 |
| 2006 |
410,000 |
1,300,000 |
1,000,000 |
| 2007 |
|
|
700,000 |
The estimated cost to complete the contract as of the end of each accounting period is:
| 2004 |
3,500,000 |
| 2005 |
400,000 |
| 2006 |
0 |
Calculate the gross profit for the years 2004-2006 under the percentage-of-completion method of revenue recognition.