Reference no: EM132405213

Question

Recognition of Profit on Long-Term Contract) Shanahan Construction Company has entered into a non-cancellable contract beginning January 1, 2017, to build a parking complex. It has been estimated that the complex will cost $600,000 and will take three years to construct. The complex will be billed to the purchasing company at $900,000. The following data pertain to the construction period.

2017 2018 2019

Costs to date $270,000 $450,000 $610,000

Estimated costs to complete 330,000 150,000 -0-

Progress billings to date (non-refundable) 270,000 550,000 900,000

Cash collected to date 240,000 500,000 900,000

Instructions

(a) Using the percentage-of-completion method, calculate the estimated gross profit that would be recognized during each year of the construction period.

(b) In addition to part a, also calculate contract revenue for 2017 and 2018.

(c) Assume progress billings are $250,000 in 2017 and $300,000 in 2018, and collections on billings are $200,000 and $275,000 respectively. The remainder of the contract price is billed and collected in 2019.

(d) Provide all required journal entries for 2017 and 2018.