(Long-Term Contract with Interim Loss) On March 1, 2007, Franziska van Almsick Construction
Company contracted to construct a factory building for Sandra Volker Manufacturing Inc. for a total contract price of $8,400,000. The building was completed by October 31, 2009. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Volker for 2007, 2008, and 2009 are below:
2007 2008 2009
Contract costs incurred during the year $3,200,000 $2,600,000 $1,450,000 $3,200,000 $2,600,000 $1,450,000
Estimated costs to complete the contract at 12/31 $3,200,000 $1,450,000 $0
Billings to Volker during the year 3,200,000 3,500,000 1,700,000 $3,200,000 $3,500,000 $1,700,000
Instructions:
1) Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2007, 2008, and 2009. (Ignore income taxes.)
2) Using the completed-contract method, prepare schedules to compute the profit or loss to be recognized as a result.