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8 February, 11:54

Beck Construction Company began work on a new building project on January 1, 2020. The project is to be completed by December 31, 2022, for a fixed price of $187 million. The following are the actual costs incurred and estimates of remaining costs to complete the project that were made by Beck's accounting staff: Years Actual costs incurred in each year Estimated remaining costs to complete the project (measured at Dec. 31 of each year) 2020 $ 50 million $ 100 million 2021 $ 85 million $ 85 million 2022 $ 55 million $ 0 Required: What amount of gross profit (or loss) would Beck record on this project in each year, assuming that Beck recognizes revenue for this project upon completion of the project

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  1. 8 February, 12:11
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    Solution:

    Computation of %, revenue recognition and gross profit - Beck construction (In millions)

    Year Actual cost incurred (A)

    2020 $ 50

    2021 $ 85

    2022 $ 55

    Year Total cost incurred till date (B)

    2020 $ 50

    2021 $ 135

    2022 $ 190

    Year Total Estimated cost (C)

    2020 $ 150

    2021 $ 220

    2022 $ 190

    Year % of completion (D) (B/C)

    2020 33%

    2021 61%

    2022 100%

    Year Contract price (E)

    2020 $187

    2021 $187

    2022 $187

    Year Total revenue to be recognised (F) (E*D)

    2020 $62

    2021 $114

    2022 $187

    Year Revenue for current period (G)

    2020 $62

    2021 $52

    2022 $73

    Year Gross Profit (H) (G-A)

    2020 $12

    2021 $-33

    2022 $18
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