Question

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.

Short answer

Answer

A gross profit of$290,000 will be recognized in 2019 under the complete contract method.

Step-by-step solution

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.

 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.