On January 2010, P & P Products began construction on a storage facility for Alpha Company. he President of P& P Products has consulted with the controller regarding estimated cost and the resulting profit. During her discussion with the controller she was informed that P & P Products used the completed contract method to account for the construction project. The president asked the controller about the percentage of completion method she remembered from her college accounting courses. She is concerned about recognizing all of the profit in a single year. She asked that the controller prepare a schedule showing the effect on the income statement and balance sheet under the percentage-of-completion vs the completed contract method. Unfortunately, the controller has delegated this task to you.
Cost for 2010= $3.2 million, cost for 2011= $5,760,000, cost for 2012= $3,840, 000
Estimated cost to complete as of the end of 2010, $10,800,000.00, estimated cost to complete as of the end of 2011 $4,000,000.00.
Billings to Alpha Company in 2010 was $3,000,000.00, for 2011 $5,000,000.00 with remaining billings during 2012.
The contract price was $18,000,000.00
Requirement:
A. Prepare a schedule showing how much profit is recognized for years 2010, 2011, and 2012 under the percentage of completion and completed contract method.
B. Prepare a schedule showing how much gross profit is recognized for years 2010, 2011, and 2012 under the completed-construction.