Reference no: EM13863887
Construction Accounting
CO-1) On January, 2010, P & P Products began construction on a storage facility for Alpha Company. The construction was completed on December 10, 2012. The president of P & P Products has consulted with the controller regarding estimated costs for the project and the resulting profit. During her discussions with the controller, she was informed that P & P Products used the completed-contract method to account for the construction project. The president asked the controller about the percentage-of-completion method she remembered reading about in her college accounting courses. She is concerned about recognizing all of the profit in a single year. She asked that the controller prepare a schedule showing the effect on the income statement and balance sheet of the percentage-of-completion versus the completed contract method. Unfortunately, the controller has delegated this task to you,
The following information was provided regarding the construction project:
Costs for 2010 = $3.2 million, costs for 2011 = $5,760,000 and costs for 2012 = $3,820,000
Estimated costs to complete as of the end of 2010 = $10,800,000, estimated costs to complete as of the end of 2011 = $4,000,000 and estimated costs to complete as of the end of 2012 = $0.
Billings to Alpha Company in 2010 were $3,000,000, billings for 2011 were $5,000,000 and the remaining billings occurred in 2012.
The contract price was $18,000,000.
Required:
a. Prepare a schedule showing how much gross profit is recognized for years 2010, 2011 and 2012 under the percentage of completion.
b. Prepare a schedule showing how much gross profit is recognized for years 2010, 2011 and 2012 under the completed-construction.
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