Inventory and Outstanding Checks
AC501: Financial Accounting and Reporting
Unit 3 Assignment
Chapter 7
E7-5 (Recognition of profit for long-Term Contracts) Andre Agassi Construction Company began operations January 1, 2008. During the year, Andre Agassi Construction entered into a contract with Lindsey Davenport Corp. to construct a manufacturing facility. At that time, Agassi estimated that it would take 5 years to complete the facility at a total cost of $ 4, 5000,000. The total contract price for construction of the facility is $ 6,300,000. During the year, Agassi incurred $ 1, 185,800 in constriction coast related to the construction project. The estimated cost to complete the contract is $ 4,204,200. Lindsey Davenport Corp. was billed and paid 30% of the contract price.
Instructions Prepare schedules to compute the amount of gross profit to be recognized for the year ended December 31, 2008, under each of the following methods.
(a) Completed-contract method.
(b) Percentage-of-completion method.
Show supporting computations in good form.
Answer
Percentage-of-completion method
Percentage of completion = (costs incurred to date/ estimated total costs)
1,185,800/ 4,204,200 =28.21%
Revenue to be recognized = 6,300,000*.2821=1,777,230
Cost to be recognized 1,185,800
Gross profit 591,430
Billings on uncompleted contract in excess of related costs and recognized profit
Receivables 1,890,000
Less: Construction expense + gross profit
(1,185,800 + 591,430)= 1,777,230
Excess of billings over costs 112,770
Completed-contract method
No gross profit is recognized in completed contract method
Billings on uncompleted contract in excess of related costs and recognized profit
Receivables 1,890,000
Less: Construction expenses 1,185,800 Excess of billings over costs 704,200
E7-8 (Installment-Sales and Cost-Recovery Methods) Kenny Harrison Corp., a capital goods manufacturing business that started on January 4, 2008, and operates on a
Unit 3 Assignment
Chapter 7
E7-5 (Recognition of profit for long-Term Contracts) Andre Agassi Construction Company began operations January 1, 2008. During the year, Andre Agassi Construction entered into a contract with Lindsey Davenport Corp. to construct a manufacturing facility. At that time, Agassi estimated that it would take 5 years to complete the facility at a total cost of $ 4, 5000,000. The total contract price for construction of the facility is $ 6,300,000. During the year, Agassi incurred $ 1, 185,800 in constriction coast related to the construction project. The estimated cost to complete the contract is $ 4,204,200. Lindsey Davenport Corp. was billed and paid 30% of the contract price.
Instructions Prepare schedules to compute the amount of gross profit to be recognized for the year ended December 31, 2008, under each of the following methods.
(a) Completed-contract method.
(b) Percentage-of-completion method.
Show supporting computations in good form.
Answer
Percentage-of-completion method
Percentage of completion = (costs incurred to date/ estimated total costs)
1,185,800/ 4,204,200 =28.21%
Revenue to be recognized = 6,300,000*.2821=1,777,230
Cost to be recognized 1,185,800
Gross profit 591,430
Billings on uncompleted contract in excess of related costs and recognized profit
Receivables 1,890,000
Less: Construction expense + gross profit
(1,185,800 + 591,430)= 1,777,230
Excess of billings over costs 112,770
Completed-contract method
No gross profit is recognized in completed contract method
Billings on uncompleted contract in excess of related costs and recognized profit
Receivables 1,890,000
Less: Construction expenses 1,185,800 Excess of billings over costs 704,200
E7-8 (Installment-Sales and Cost-Recovery Methods) Kenny Harrison Corp., a capital goods manufacturing business that started on January 4, 2008, and operates on a