FINANCIAL ACCOUNTING
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ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Widjaja Company is accounting for a long-term construction contract using the percentage-of-completion method. It is a 4-year contract that is currently in its second year. The latest estimates of total contract costs indicate that the contract will be completed at a profit to Widjaja Company.
Instructions
a. What theoretical justification is there for Widjaja Company's use of the percentage-of-completion method?
b. How would progress billings be accounted for? Include in your discussion the classification of progress billings in Widjaja Company financial statements.
c. How would the income recognized in the second year of the 4-year contract be determined using the cost-to-cost method of determining percentage of completion?
d. What would be the effect on earnings per share in the second year of the 4-year contract of using the percentage-of-completion method instead of the completed-contract method? Discuss.
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- Windsor Construction Company uses the percentage-of-completion method of accounting. In 2014, Windsor began work on a contract it had received which provided for a contract price of $3,000,000. Other details follow for 2014: Costs incurred during the year $1,400,000 Estimated costs to complete as of December 31 2014, $600,000 Billings during the year $1,000,000 Collections during the year $900,000 What should be the gross profit recognized in 2014? - $700,000 - $1,000,000 - $1,400,000 - $2,100,000arrow_forwardUse the percentage-completion method and show all calculations and explanation in detail.arrow_forwardPharoah Construction Company uses the percentage-of-completion method of accounting. In 2025, Pharoah began work under a contract with a contract price of $1,650,000. Other details follow: Costs incurred during the year Estimated costs to complete, as of December 31 Billings during the year Collections during the year (a) Your answer is incorrect. 2025 $1,093,400 446,600 933,400 260,000 2026 $1,510,000 -0- 1,650,000 1,650,000 What portion of the total contract price would be recognized as revenue in 2025? In 2026?arrow_forward
- Lark Corp. appropriately determined that each of its long-term projects represents a single performance obligation that is satisfied over time. At the end of the current year, Lark estimates that its costs to complete a project exceed the contract price, so that an overall loss on the contract is anticipated. Required: What journal entry will Lark record at the end of the current year, given the following information? • Revenue to date is $350,000 ($175,000 of which is to be recognized in the current year). • The expense recognized previously was $100,000. • An overall loss of $30,000 is anticipatedarrow_forwardShumpert, Inc. entered into a contract that was to take two years to complete, with an estimated cost of $2,257,600. The contract price was $3,160,640. Costs of the contract for 2014, the first year, totaled $1,693,200. a. What was the gross profit reported by the percentage of completion method for 2014?arrow_forward
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