Shumpert, Inc., entered into a contract that was to take two years to complete, with an estimated cost of $900,000. The contract price was $1,300,000. Costs of the contract for 2019, the first year, totaled $675,000. What was the gross profit reported by the percentage of completion method for 2019? After the contract was completed at the end of 2020 at a total cost of $950,000, what was the gross profit reported by the percentage of completion method for 2020?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Shumpert, Inc., entered into a contract that was to take two years to complete, with an estimated cost of $900,000. The contract price was $1,300,000. Costs of the contract for 2019, the first year, totaled $675,000.

  1. What was the gross profit reported by the percentage of completion method for 2019?

  2. After the contract was completed at the end of 2020 at a total cost of $950,000, what was the gross profit reported by the percentage of completion method for 2020?

Expert Solution
Step 1

Given:

  2019 2020
Contract Price   1,300,000  
Costs incurred 675,000   275,000  

 

Under the Percentage of completion method, contract completion (%) is calculated to recognize the revenue.

 

In this case, the 2-year contract is 75% complete in the 1st year as shown in the next step.

 

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