Percentage-Of-Completion and Completed-Contract Methods
on June 15, 2020, Lion Construction

question 8

Essay

Percentage-of-completion and completed-contract methods
On June 15, 2020, Lion Construction signed a $ 360,000 contract to build a small building. Lion estimated that the total cost would be $ 320,000. Construction started immediately because the required completion date was August 31, 2021. Lion’s relevant data relating to this construction project were as follows:
$\begin{array}{c}\begin{array}{lll}\\\text {Actual costs incurred}\\\text {Estimated costs to complete}\\\text {Progress billings}\\\text {Collections} \end{array}\begin{array}{r}\underline{2020}\\\$ 120,000 \\200,000 \\112,000 \\110,000 \end{array}\begin{array}{r}\underline{2021}\\\$ 204,000\\-0- \\248,000 \\250,000\end{array}\end{array}$

Instructions
Calculate how much gross profit that Lion should recognize each year, assuming:

$\quad$ $\quad$ Method Used $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ For 2020 $\quad$ For 2021
a) Completed contract
b) Percentage-of-completion

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Definitions:

Adjustment Technique

Methods or procedures used to modify data, processes, or systems in order to correct errors or enhance functionality.

Mean-Variance Efficient Portfolio

An investment portfolio optimized for the highest expected return for a given level of risk, based on modern portfolio theory.

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A measure of how two securities move in relation to each other, indicating the degree to which their returns are interconnected.

Investments

The act of allocating resources, usually money, with the expectation of generating an income or profit.