Question

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

Answer 1

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