Long-Term Construction Contract:
Osborn Construction Company began operations January 2, 2013. During the year, Osborn entered into a contract with Redbeard Razor Corporation to construct a manufacturing facility. At that time, Osborn estimated that it would take 5 years to complete the facility at a total cost of $4,800,000. The total contract price for construction of the facility is $6,000,000. During the year, Osborn incurred $1,250,000 in construction costs related to the construction project. The estimated cost to complete the contract is $3,750,000. Redbeard was billed and paid 30% of the contract price.
Prepare schedules to compute the amount of gross profit to be recognized for the year ended December 31, 2013, and the amount to be shown as "cost of uncompleted contract in excess of related billings" or "billings on uncompleted contract in excess of related costs" on December 31, 2013, under the following methods:
1. Completed-contract method
Osborn Construction Company
Billings in Excess of Related Costs
December 31, 2013
Construction costs incurred during the year $
Partial billings on contract
Billings on uncompleted contract in excess of related costs
2a. Percentage-of-completion method (Computation of Gross Profit)
Osborn Construction Company
Computation of Gross Profit to be Recognized
December 31, 2013
Total contract price $
Total estimated cost
Estimated total gross profit from contract $
Percentage of completion %
Gross profit recognized during the year
Osborn Construction Company
Billings in Excess of Related Costs
December 31, 2013
Construction costs incurred during the year $
Gross profit recognized during the year
Total charged to construction in progress $
Partial billings on contract
Billings on uncompleted contract in excess of related costs