Question 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. Additional information follows.
Office Building
Cash Actual Costs Collections 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 project is completed in 2007, and all cash to be received from the contract has been received.
Instructions make a schedule to determine the gross profit in each year for the long-term construction contract using the percentage-of-completion method.
Question 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 follows.
Cash Collected
2004 $ 800,000
2005 1,200,000
2006 500,000
(a) Determine the gross profit for each year using the installment method.
(b) Repeat (a) assuming the construction costs were $1.75 million.