Long-Term Construction Project Accounting
Giants Construction Inc $\text {Contract price}\ldots \ldots \ldots \ldots \ldots \ldots \ldots\$2,000,000$

question 23

Essay

Long-term construction project accounting
Giants Construction Inc. specializes in the construction of commercial and industrial buildings. The company is experienced in bidding on long-term construction projects of this type, with the typical project lasting from fifteen to twenty-four months. Giants uses the percentage-of-completion method. Progress toward completion is measured on a cost-to-cost basis. Giants began work on a contract at the beginning of 2020. Data for 2020 follow:
$\text {Contract price}\ldots \ldots \ldots \ldots \ldots \ldots \ldots\$2,000,000$
$\text {Estimated costs}$
$\quad\text {Labour}\ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots \ldots \ldots\$425,000$
$\quad\text {Materials and subcontracts}\ldots \ldots \ldots \ldots 875,000$
$\quad\text {Indirect costs}\ldots\ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots \ldots\underline{200,000}\quad\underline{1,500,000}$
$\text {Estimated gross profit}\ldots \ldots \ldots \ldots\ldots\ldots \ldots \quad\quad\quad\quad\quad\underline{\$500,000}$


$\text {At the end of 2020, the following was the actual status of the contract:Progress Billings to date}\quad\quad\quad\quad\quad\ldots \ldots \ldots \ldots\$ 1,115,000$
$\text {Costs incurred to date}$
$\quad\text {Labour}\ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots \ldots \ldots\$207,000$
$\quad\text{Materials and subcontracts}............................ \quad \$ 519,000$
$\quad\text{Indirect costs}\ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots\ldots \ldots\underline{75,000}\quad801,000$
$\text {Latest forecast of total costs}\ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots \quad \quad\quad\quad\quad\$1,500,000$

It should be noted that included in the above costs incurred to date were standard electrical and mechanical materials stored on the job site, but NOT yet installed, costing $ 51,000. These costs should NOT be considered in the costs incurred to date.

Instructions
a) Calculate the percentage of completion on the contract at the end of 2020.
b) Calculate the gross profit that would be reported on this contract for 2020.
c) Prepare the journal entry to record the revenue and gross profit for 2020 on Giants’ books.
d) Indicate the account(s) and the amount(s) that would be shown on Giant’s statement of financial position at the end of 2020 related to its construction accounts. Also show how these items would be classified on the statement of financial position. Cash collected during the year was $ 980,000.
e) Assume, instead of $ 1,500,000, the latest forecast of total costs at the end of 2020 was $ 2,050,000. How much income (loss) would Giant then report for the year 2020?

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