Solution 18-112
2007 2008 2009
Percentage-of-Completion Gross Profit a $750,000 b $210,000 c $440,000
2007 2008 2009
Completed-Contract Gross Profit — — d $1,400,000
a
$1,500,000 ————— × $2,000,000 = $750,000 $4,000,000
b
$2,640,000 ————— × $1,600,000 = $960,000 $4,400,000
Less 2007 gross profit 2008 gross profit
(750,000) $210,000
c
$6,000,000 4,600,000 1,400,000 (960,000) $ 440,000
d
$6,000,000 4,600,000 $1,400,000
Total revenue Total costs Total gross profit Recognized to date 2009 gross profit Total revenue Total costs Total gross profit
Pr. 18-117—Long-term
construction project accounting.
Benson Construction specializes in the construction of commercial and industrial buildings. The contractor is experienced in bidding long-term construction projects of this type, with the typical project lasting fifteen to twenty-four months. The contractor uses the percentage-of-completion method of revenue recognition since, given the characteristics of the contractor's business and contracts, it is the most appropriate method. Progress toward completion is measured on a cost to cost basis. Benson began work on a lump-sum contract at the beginning of 2008. As bid, the statistics were as follows: Lump-sum price (contract price) Estimated costs Labor Materials and subcontractor Indirect costs
$4,000,000 $ 850,000 1,750,000 400,000
3,000,000 $1,000,000
