Simulation _ CPA4

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9/14/23, 11:09 PM Simulation | CPA https://cpa.becker.com/module/F-01-04/V4.3/sim/session 1/7 PERCENTAGE OF COMPLETION METHOD Question 1 Solution: Calculation: Estimate pro±t (Sale price $2,800,000 – Estimated costs $1,600,000) $1,200,000 Determine percentage complete (Costs to date $400,000 / Estimated Costs $1,600,000) 25% Apply percentage complete to estimated pro±t ($1,200,000 × 25%) $ 300,000 Question 2 Solution:

9/14/23, 11:09 PM Simulation | CPA https://cpa.becker.com/module/F-01-04/V4.3/sim/session 2/7 Question 3 Solution:

9/14/23, 11:09 PM Simulation | CPA https://cpa.becker.com/module/F-01-04/V4.3/sim/session 3/7 Calculation: Construction in progress ($400,000 + $300,000) $700,000 Less: Progress billings 250,000 Net construction in progress (Current asset) $450,000 Question 4 Solution: Calculation: Estimate pro±t (Sale price $2,800,000 – Estimated costs $2,000,000) $800,000 Determine percentage complete (Costs to date $900,000 / Estimated Costs $2,000,000) 45% Apply percentage complete to estimated pro±t ($800,000 × 45%) to ±nd the cumulative Year 2 pro±t $360,000 Subtract pro±t recognized in Year 1 300,000 Pro±t to be recognized in Year 2 $ 60,000 Question 5 Solution:

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9/14/23, 11:09 PM Simulation | CPA https://cpa.becker.com/module/F-01-04/V4.3/sim/session 4/7 Question 6 Solution:

9/14/23, 11:09 PM Simulation | CPA https://cpa.becker.com/module/F-01-04/V4.3/sim/session 5/7 Calculation: Construction in progress Year 1 ($400,000 + $300,000) $700,000 Year 2 ($500,000 + $60,000) 560,000 $1,260,000 Less: Progress billings through Year 2 1,150,000 Net construction in progress (Current asset) $ 110,000 Question 7 Solution: a) What is the gross pro±t recognized in Year 3? (Calculation: Total of $800,000 – Amount recognized in Years 1 and 2 of $360,000 [$300,000 + $60,000 = $360,000]) $440,000 b) What amount is shown on the balance sheet at the end of Year 3? (All accounts are closed by the end of Year 3.) $0 c) Assume that total estimated costs are $3,000,000 in Year 2. All other amounts remain the same as above. What is the gross pro±t recognized in Year 2 under this new assumption? ($500,000) Loss Calculation for part c above: If the estimated costs were $3,000,000 in Year 2, the total amount of gross pro±t/(loss) would then be: (Price of $2,800,000 – Costs of $3,000,000 = Loss of $200,000) ($200,000) In year 1, $300,000 of gross pro±t was recognized Less: $300,000 In Year 2, the cumulative loss must be $200,000. To accomplish this, a loss in Year 2 of $500,000 must be recognized. The gross pro±t in Year 1 of $300,000 added to the Year 2 loss of $500,000 yields the cumulative loss of $200,000 through the end of Year 2. ($500,000) COMPLETED CONTRACT METHOD (GAAP)

9/14/23, 11:09 PM Simulation | CPA https://cpa.becker.com/module/F-01-04/V4.3/sim/session 6/7 Question 1 Solution: Calculate the Gross Pro±t booked in Year 1: (No gross pro±t can be booked until the contract is completed in Year 3.) $0 Question 2 Solution:

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9/14/23, 11:09 PM Simulation | CPA https://cpa.becker.com/module/F-01-04/V4.3/sim/session 7/7 Question 3 Solution: The balance sheet at the end of Year 1 will show a: (Calculation: Construction in progress of $400,000 – Process billings of $250,000) Current asset $150,000 Question 4 Solution: a) What is the gross pro±t recognized in Year 3? (Under the completed contract method, all gross pro±t is recognized when the contract is 100% complete.) $800,000 b) Assume that total estimated costs are $3,000,000 in Year 2. All other amounts remain the same as above. What is the gross pro±t recognized in Year 2 under this new assumption? (Even under the completed contract method, all losses are recognized when it becomes apparent there will be a loss on the entire contract. Calculation: Revenue of $2,800,000 – Costs of $3,000,000) ($200,000) Loss c) What is the ±nal journal entry for Year 3, assuming all of the amounts as originally stated?