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Compute the amount of gross profit

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Question - Cheyenne Construction Company began operations on January 1, 2020. During the year, Cheyenne Construction entered into a contract with Lundquist Corp. to construct a manufacturing facility. At that time, Cheyenne estimated that it would take 5 years to complete the facility at a total cost of $4,545,000. The total contract price for construction of the facility is $5,973,000. During the year,

Cheyenne incurred $1,190,420 in construction costs related to the construction project. The estimated cost to complete the contract is $4,220,580. Lundquist Corp. was billed and paid 24% of the contract price.

How to compute the amount of gross profit to be recognized for the year ended December 31, 2020, and the amount to be shown as "costs and recognized profit in excess of billings" or "billings in excess of costs and recognized profit" at December 31, 2020, under each of the following methods.

(a) Completed-contract method.

(b) Percentage-of-completion method.

Reference no: EM132480586

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