Bower Construction Comp Required (Show Calculations):
1 $2012 .$

question 14

Essay

Bower Construction Comp.has consistently used the percentage-of-completion method for recognizing revenue on its long-term contracts.During 2010 Bower entered into a fixed-price contract to construct an office building for $8,000,000.Information relating to the contract is as follows:
$\begin{array}{l}\begin{array}{lll}\\ \text { Percent Complete}\\ \text { Estimated Total Cost at Completion }\\ \text { Gross Profit Recognized to date}\\\end{array}\begin{array}{lll}2010&2011&2012\\25 \% & 70 \% & 100 \% \\\$ 5,600,000 & \$ 6,400,000 & \$ 6,500,000 \\600,000 & 1,120,000 & ?\end{array}\end{array}$
Required (Show Calculations):
1. Compute contract costs incurred during 2010, 2011 and $2012 .$
2. Determine how much gross profit Bower should recognize in 2012 .
3. Under what conditions would it not be reasonable for a company to use the percentage of completion method of recognizing revenue on long-term contracts?
4. If Bower had used the completed contract method of accounting for this long-term contract how much gross profit would it have earned in 2010,2011 and $2012 ?$

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Definitions:

Pressure From Above

The influence or control exerted by higher levels of a hierarchy, such as senior management on employees or governments on citizens, to achieve compliance or change.

Organizational Pressure

External or internal forces that influence an organization's operations and decision-making processes.

Terminal Values

Fundamental beliefs and goals that individuals consider as their final life objectives or desirable end-states.

Rokeach Value Survey

A psychological survey that measures the terminal and instrumental values individuals have, helping to understand their beliefs, personality, and behavior.