Question: P18-9 (LO5,6) EXCEL (Recognition of Profit on Long-Term Contract) Shanahan Construction Company has entered into a contract beginning January 1, 2017, to build a parking complex. It has been estimated that the complex will cost \(600,000 and will take 3 years to construct. The complex will be billed to the purchasing company at \)900,000. The following data pertain to the construction period.

	2017	2018	2019
Cost to date	\(270,000	\)450,000	$610,000
Estimated cost to Complete	330,000	150,000	-
Progress billing to date	270,000	550,000	900,000
Cash collected to date	240,000	500,000	900,000

Instructions

Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period.

Step by step solution

01

Definition of Complete Contract Method

The method used to account for a contract under which the revenue and gross profit will be recognized only when the contract gets completed known as the complete contract method.

02

 Step 2: Gross profit under complete contract method

Particular	Amount $
Total billing	$900,000
Less: Total cost	($610,000)
Gross profit recognized in the year 2019	$290,000

No gross profit will be recognized for 2017 and 2018 because the contract gets completed in 2019.

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