Homework SourseCompleted Contract Method versus PercentageofCompletion Meth
Completed Contract Method versus Percentage-of-Completion Method The Miller Company won a contract to build a shopping center at a price of $240 million The following schedule details the estimated and actual costs of construction and the actual cash collections under the contract: Estimated (Actual) CostsCash Collections of Construction From Customer Year 1 Year 2 Year 3 Year 4 $40,000,000 60,000,000 70,000,000 30,000,000 200,000,000 $48,000,000 60,000,000 60,000,000 72,000,000 $240,000,000 Prepare an income statement for the Miller Company for each year assuming that the company recognizes revenue under the completed contract method Year 1 Year 2 Year 3 Year 4 Total Revenue Construction Cost Net Income Prepare an income statement for the Miller Company for each year assuming that the company recognizes revenue under the percentage-of-completion method Year 1 Year 2 Year 3 Year 4 Total Revenue Construction Cost Net Income
Solution
Net Profit is calculated as under:
| Completed contract Method | |||||
| S.No. | Detail | 1 | 2 | 3 | 4 |
| 1 | Cost incurred during the year | $400,00,000 | $600,00,000 | $700,00,000 | $300,00,000 |
| 2 | Accumulated Cost At The End | $400,00,000 | $1000,00,000 | $1700,00,000 | $2000,00,000 |
| 3 | Estimated costs to complete as of year-end | $1600,00,000 | $1000,00,000 | $300,00,000 | $0 |
| 4 | Estimated Total Cost (2+3) | $2000,00,000 | $2000,00,000 | $2000,00,000 | $2000,00,000 |
| 5 | Completion %(2/5) | 0.00% | 0.00% | 0.00% | 100.00% |
| 6 | Recognized Revenue till date | ||||
| 240000000*Completion% | - | - | - | 2400,00,000 | |
| 7 | Recognized Revenue in year | - | - | - | 2400,00,000 |
| 8 | Billings during the year | $0 | $0 | $0 | $0 |
| 9 | Cash collections during the year | $480,00,000 | $600,00,000 | $600,00,000 | $720,00,000 |
| 10 | Gross Profit(7-1) | $0 | $0 | $0 | $400,00,000 |
