On February 1, 2020, Mar Contractors agreed to construct a building at a contract price of $15,400,000. Mar initially estimated total construction costs would be $12,000,000 and the project would be finished in 2023. Information relating to the costs and billings for this contract during 2020-2022 is as follows: 2020 2021 2022 Total costs incurred during the year 4,500,000 5,300,000 4,000,000 Estimated costs to complete 7,500,000 4,200,000 1,800,000 Customer billings to date 6,600,000 12,000,000 13,800,000 Collections to date 6,000,000 10,500,000 13,500,000 Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract and all the necessary journal entries for the years ended December 31, 2020, 2021, and 2022. Using the cost-recovery method, prepare schedules to compute the profit or loss to be recognized as a result of this contract all the necessary journal entries to record the costs, expenses and revenue for the years ended December 31, 2020, 2021, and 2022. (Journal entries for billings and collection are not required.) According to the photo, solution of part (a) ** part claimed that "Since the contract become unprofitable in 2022, the company has to record the entire loss in 2022 and any previous profits recorded are to be reversed." So the 2022 total gross profit recognized is -20000. I don't get it, what does that means? As far as I know the calculation of the three year's total gross profit recognized are contract price x percentage complete of the the year - cost to date 2020: 15400000 x 37.5% - 4500000 = 1275000 (correct answer) 2021: 15400000 x 37.5% - 9800000 = 980000 (correct answer) 2022: 15400000 x 88.46% - 13800000 = -177160 (wrong answer)

On February 1, 2020, Mar Contractors agreed to construct a building at a contract price of $15,400,000. Mar initially estimated total construction costs would be $12,000,000 and the project would be finished in 2023. Information relating to the costs and billings for this contract during 2020-2022 is as follows: 2020 2021 2022 Total costs incurred during the year 4,500,000 5,300,000 4,000,000 Estimated costs to complete 7,500,000 4,200,000 1,800,000 Customer billings to date 6,600,000 12,000,000 13,800,000 Collections to date 6,000,000 10,500,000 13,500,000 Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract and all the necessary journal entries for the years ended December 31, 2020, 2021, and 2022. Using the cost-recovery method, prepare schedules to compute the profit or loss to be recognized as a result of this contract all the necessary journal entries to record the costs, expenses and revenue for the years ended December 31, 2020, 2021, and 2022. (Journal entries for billings and collection are not required.) According to the photo, solution of part (a) ** part claimed that "Since the contract become unprofitable in 2022, the company has to record the entire loss in 2022 and any previous profits recorded are to be reversed." So the 2022 total gross profit recognized is -20000. I don't get it, what does that means? As far as I know the calculation of the three year's total gross profit recognized are contract price x percentage complete of the the year - cost to date 2020: 15400000 x 37.5% - 4500000 = 1275000 (correct answer) 2021: 15400000 x 37.5% - 9800000 = 980000 (correct answer) 2022: 15400000 x 88.46% - 13800000 = -177160 (wrong answer)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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2020 2021 2022

Total costs incurred during the year 4,500,000 5,300,000 4,000,000

Estimated costs to complete 7,500,000 4,200,000 1,800,000

Customer billings to date 6,600,000 12,000,000 13,800,000

Collections to date 6,000,000 10,500,000 13,500,000

Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract and all the necessary journal entries for the years ended December 31, 2020, 2021, and 2022.
Using the cost-recovery method, prepare schedules to compute the profit or loss to be recognized as a result of this contract all the necessary journal entries to record the costs, expenses and revenue for the years ended December 31, 2020, 2021, and 2022. (Journal entries for billings and collection are not required.)

According to the photo, solution of part (a)

** part claimed that

"Since the contract become unprofitable in 2022, the company has to record the entire loss in 2022 and any previous profits recorded are to be reversed." So the 2022 total gross profit recognized is -20000.

I don't get it, what does that means?

As far as I know the calculation of the three year's total gross profit recognized are

contract price x percentage complete of the the year - cost to date

2020: 15400000 x 37.5% - 4500000 = 1275000 (correct answer)

2021: 15400000 x 37.5% - 9800000 = 980000 (correct answer)

2022: 15400000 x 88.46% - 13800000 = -177160 (wrong answer)

Financial Reporting Assignment 1 Solution
Question 1
(a) Gross profit recognized in:
Contract price
Costs:
Costs to date
Estimated costs to
complete
Total estimated profit
Percentage completed
to date
Total gross profit
recognized
Less: Gross profit
recognized in previous
years
Gross profit
recognized in current
year (6)
2020
15,400,000
1,275,000
4,500,000
9,800,000
7,500,000 12,000,000 4,200,000 14,000,000
3,400,000
1,400,000
X37.5%*
0
2021
$1,275,000
15,400,000
X70%*
980,000
1,275,000
($295,000)
2022
15,400,000
13,800,000
1,800,000 15,600,000
(200,000)
88.50%*
(200,000)
(980,000)
(1,180,000)
*$4,5,000+ $12,000,000
9,800,000
$14,000,000
13,800,000/15,600,000
**Since the contract become unprofitable in 2022, the company has to record the entire loss in
2022 and any previous profits recorded are to be reversed.

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