(Recognition of Profit and Balance Sheet Amounts for Long-Term Contracts)
Harman Construction Company began operations January 1, 2014. During the year, Harman Construction entered into a contract with Kardon Corp. to construct a retail showcase facility. At that time, Harman estimated that it would take 2 years to complete the facility, at a total cost of $7,500,000. The total contract price for construction of the facility is $9,000,000. During the year, Harman incurred $3,040,000 in construction costs related to the construction project. The estimated cost to complete the contract is $4,560,000. Kardon Corp.
was billed and paid 20% of the contract price.
Instructions
Prepare schedules to compute the amount of gross profit to be recognized for the year ended December 31, 2014, and the amount to be shown as "costs and unrecognized profit on uncompleted contract in excess of related billings" or "billings on uncompleted contract in excess of related costs and recognized profit" at December 31, 2014, under each of the following methods.
(a) Completed-contract method.
(b) Percentage-of-completion method.
Show supporting computations in good form.