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Calculate net income for the construction project

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Question - Star Construction Corporation has a contract to construct a building for $10,950,000. The building is controlled by the customer throughout the term of the contract. Total costs to complete the building were originally estimated at $8,850,000. Construction commenced on 4 February 20×5. Actual costs were in line with estimated costs for 20×5 and 20×6. In 20×7, actual costs exceeded estimated costs by $150,000.

Total construction costs incurred in each year were as follows:

20X5: $2,700,000

20X6: $4,500,000

20X7: $1,800,000

Progress billings based on the amount of work completed were collected each year. Star Construction uses the percentage-of-completion method. The percentage-of-completion is based on costs incurred compared with estimated total costs of the project.

Company also billed the client and collected the following payments

Year Billings Payments Received

20X5: $2,300,000 $2,100,000

20X6: $4,900,000 $4,700,000

20X7: $3,750,000 $4,150,000

Required - Calculate Net income for the construction project for each of the three years:

a) Completed contract method?

b) Percentage-of-completion method?

Reference no: EM132716179

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