Buildings Ltd Required:
A

question 99

Essay

Buildings Ltd. is constructing a residential building in downtown Vancouver for a contract price of $15,000,000. Costs for this contract were initially estimated to be $12,000,000. The company uses the percentage of completion method of revenue recognition, using the cost-to-cost method of estimating the percentage complete. The following information is available:
$$\begin{array} { | l | r | r | r | } \hline & \text { Year 1 } & \text { Year 2 } & { \text { Year 3 } } \\\hline \text { Costs incurred each year } & 4,500 & 8,500 & 2,000 \\\hline \text { Additional costs to complete estimated at year end } & 7,500 & 5,000 & 0 \\\hline \text { Billings } & 6,000 & 6,000 & 3,000 \\\hline \text { Collections } & 5,000 & 6,500 & 3,500 \\\hline\end{array}$$ Required:
a. Calculate the amount of gross profit to be recognized in each year. Show computations in good form.
b. Calculate the amount of revenue to be recognized in Year 2.
c. Prepare all the journal entries required in Year 2.
d. Prepare the journal entry required in Year 3 to acknowledge completion and acceptance of the project.

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Definitions:

Strike Price

The set price at which an option contract can be bought (call) or sold (put) when it is exercised.

Underlying Stock

The stock that must be delivered when a derivative contract, like an option or futures contract, is exercised.

Initial Cost

The initial expenditure involved in purchasing an asset or starting a project.

Exercise Price

The established price at which an option holder may execute the purchase (in a call option scenario) or sale (when dealing with a put option) of the related security or commodity.