Star Construction Corporation has a contract to construct a building for $10,950,000. The building is controlled by the customer throughout the term of the contract. Total costs to complete the building were originally estimated at $8,850,000. Construction commenced on 4 February 20×5. Actual costs were in line with estimated costs for 20×5 and 20×6. In 20×7, actual costs exceeded estimated costs by $150,000. Total construction costs incurred in each year were as follows: 20X5: $2,700,000 20X6: $4,500,000 20X7: $1,800,000 Progress billings based on the amount of work completed were collected each year. Star Construction uses the percentage-of-completion method. The percentage-of-completion is based on costs incurred compared with estimated total costs of the project. Company also billed the client and collected the following payments Year Billings Payments Received 20X5: $2,300,000 $2,100,000 20X6: $4,900,000 $4,700,000 20X7: $3,750,000 $4,150,000 Calculate Net income for the construction project for each of the three years: a) Completed contract method? 20X5: $___________ 20X6: $__________________ 20X7_________________. b) Percentage-of-completion method? (basis: estimated costs to complete) 20X5: $______________ 20X6: $__________________ 20X7____________________.
Star Construction Corporation has a contract to construct a building for $10,950,000. The building is controlled by the customer throughout the term of the contract. Total costs to complete the building were originally estimated at $8,850,000. Construction commenced on 4 February 20×5. Actual costs were in line with estimated costs for 20×5 and 20×6. In 20×7, actual costs exceeded estimated costs by $150,000.
Total construction costs incurred in each year were as follows:
20X5: $2,700,000
20X6: $4,500,000
20X7: $1,800,000
Progress billings based on the amount of work completed were collected each year. Star Construction uses the percentage-of-completion method. The percentage-of-completion is based on costs incurred compared with estimated total costs of the project.
Company also billed the client and collected the following payments
|
Year |
Billings |
Payments Received |
|
20X5: |
$2,300,000 |
$2,100,000 |
|
20X6: |
$4,900,000 |
$4,700,000 |
|
20X7: |
$3,750,000 |
$4,150,000 |
Calculate Net income for the construction project for each of the three years:
- a) Completed contract method?
20X5: $___________ 20X6: $__________________ 20X7_________________.
b) Percentage-of-completion method? (basis: estimated costs to complete)
20X5: $______________ 20X6: $__________________ 20X7____________________.
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