Problem - On January 1, 2011, Estimator, Inc. entered into two $1,800,000 fixed-price contracts to construct office buildings. The estimated time for both projects was three years.
2011 2012 2013
Contract A
Incurred costs to date $250,000 $320,000 $1,530,000
Est. costs to complete 1,250,000 1,280,000 0
Billed during year 220,000 1,130,000 450,000
Collected during year 180,000 1,040,000 580,000
Contract B
Incurred costs to date $250,000 $320,000 $1,810,000
Est. costs to complete 1,250,000 1,490,000 0
Billed during year 220,000 1,130,000 450,000
Collected during year 180,000 1,040,000 580,000
Required:
1) Prepare the necessary journal entry that Estimator would record under the percentage-of-completion method to recognize revenue, expenses, and gross profit/loss for each year for Contract A. All other entries may be ignored.
2) Prepare the necessary journal entry (if any) that Estimator would record under the completed contract method to recognize any losses for Contract B. In what year(s) is this entry recorded?
3) Prepare the necessary journal entries (if any) to recognize expenses and revenue in each year under the completed contract for each contract. Do not include the entry from #2. All other entries may be ignored.
4) What is the total income/(loss) recognized on each contract over the three year period?