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:

Positive Response

A favorable reaction or reply to stimuli, information, or an action.

Generates Energy

The ability of a person, process, or environment to inspire and stimulate physical or mental activity.

Social Exchange Process

A theory that explains social change and stability as a process of negotiated exchanges between parties.

Expectancy Theory

A motivational theory suggesting that an individual's behavior is determined by their expected outcomes or rewards.