On July 1, 2025, Torvill Construction Company Inc. contracted to build an office building for Gumbel Corp. On July 1, Torvill estimated that it would take between 2 and 3 years to complete the building. On December 31, 2027, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Gumbel for 2025, 2026, and 2027. NOTE: The company's fiscal year aligns with the calendar year. The phrase "to date" that is used in the contract details below, as well as in the answer table, means up to the present time. Pay attention to the years that you're working with! Total contract price $ 2,400,000 Contract costs incurred to date $ Estimated costs to complete the contract Progress Billings to Gumbel during year At 12/31/25 300,000 1,200,000 300,000 1,100,000 At 12/31/26 At 12/31/27 $1,220,000 $2,150,000 800,000 800,000 Instructions a. b. Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2025, 2026, and 2027. (Ignore income taxes.) Using the cost recovery method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2025, 2026, and 2027. (Ignore income taxes.)
On July 1, 2025, Torvill Construction Company Inc. contracted to build an office building for Gumbel Corp. On July 1, Torvill estimated that it would take between 2 and 3 years to complete the building. On December 31, 2027, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Gumbel for 2025, 2026, and 2027. NOTE: The company's fiscal year aligns with the calendar year. The phrase "to date" that is used in the contract details below, as well as in the answer table, means up to the present time. Pay attention to the years that you're working with! Total contract price $ 2,400,000 Contract costs incurred to date $ Estimated costs to complete the contract Progress Billings to Gumbel during year At 12/31/25 300,000 1,200,000 300,000 1,100,000 At 12/31/26 At 12/31/27 $1,220,000 $2,150,000 800,000 800,000 Instructions a. b. Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2025, 2026, and 2027. (Ignore income taxes.) Using the cost recovery method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2025, 2026, and 2027. (Ignore income taxes.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On July 1, 2025, Torvill Construction Company Inc. contracted to build an office building for Gumbel Corp. On July 1,
Torvill estimated that it would take between 2 and 3 years to complete the building. On December 31, 2027, the
building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to
complete the contract, and accumulated billings to Gumbel for 2025, 2026, and 2027.
NOTE: The company's fiscal year aligns with the calendar year. The phrase "to date" that is used in the contract
details below, as well as in the answer table, means up to the present time. Pay attention to the years that you're
working with!
Total contract price
$
2,400,000
Contract costs incurred to date
$
Estimated costs to complete the contract
Progress Billings to Gumbel during year
At 12/31/25
300,000
1,200,000
300,000
1,100,000
At 12/31/26 At 12/31/27
$1,220,000 $2,150,000
800,000
800,000
Instructions
a.
b.
Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be
recognized as a result of this contract for the years ended December 31, 2025, 2026, and 2027. (Ignore
income taxes.)
Using the cost recovery method, prepare schedules to compute the profit or loss to be recognized as a
result of this contract for the years ended December 31, 2025, 2026, and 2027. (Ignore income taxes.)
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