Question

Summary data for Benedict Construction Co.'s (BCC) Job 1227, which was completed in 2017, are presented below:

Bid Price: $450,000
Contract cost: 2016 -180,000
2017 -195,000
Gross Profit: 75,000
Estimated Cost to Complete:
12/31/2016 $200,000
12/31/2017 0
1. Assuming BCC uses the percentage-of-completion method of revenue recognition, the gross profit recognized in 2016 would be (rounded to the nearest thousand):
2. Assuming BCC uses the percentage-of-completion method of recognition the gross profit recognized in 2017 would be (rounded to the nearest thousand):
3. Assuming BCC used the completed contract method to recognize revenue, what would gross profit have been in 2016 and 2017 (rounded to the nearest thousand)?
2016 2017
a. $36,000 $39,000
b. $30,000 $45,000
c. $70,000 $5,000
d. $ 0 $75,000
4. Assuming BCC used the cost recovery method to recognize revenue under IFRS, what would gross profit have been in 2016 and 2017 (rounded to the nearest thousand)?

Answer 1

Step-by-step explanation:

Bid price - $450,000

Contract cost 2016- $ 180,000

Contract cost in 2017 - $195,000

Gross profit = $75,000

Estimated cost to complete at 2016 - $200,000

Percentage completion in 2016 - 180000/380000* 100 =47 %

Revenue recognized in 2016 - 47% * 450,000 = 211,500

Gross profit = 211,500- 180,000 = 31,500

2017

Revenue recognized - 53% = $238,500

Cost $195,000

Gross profit $43,500

3)Completed contract method -

Income are recognized when contract is completed

2016 - No revenue generated / recorded

2017

Revenue - 450,000

Cost to date - 375,000

Gross profit - 75,000

4) When using the cost recovery method under IFRS , an equal amount of income and revenue is recognized in the early life time of the project

2016

Income - 180000

Cost- 180000

Gross profit - 0

2017

Income -450000

cost 375,000

Gross profit - $75,000