A Construction Company Entered into a Three-Year Contract to Erect

question 49

Essay

A construction company entered into a three-year contract to erect a building for a customer. Its original bid on the job was for $3,600,000 but this was revised upward in year 3 to $3,900,000 because the customer negotiated for some "extras" (modification in the original specifications). A cumulative history of costs incurred and cost expectations throughout the three years the contract was in progress is set out below. Give the income to be reported (a) using the percentage-of-completion method, and (b) using the completed contract method. $\begin{array} { | l | l | l | l | } \hline & \text { Year 1 } & \text { Year 2 } & \text { Year 3 } \\\hline \text { Expected revenues } & \$ 3,600,000 & \$ 3,600,000 & \$ 3,900,000 \\\hline \text { Actual costs (cumulative) } & 750,000 & 2,550,000 & 3,270,000 \\\hline \text { Expected future costs } & 2,250,000 & 525,000 & - 0 - \\\hline\end{array}$

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Definitions:

Liter

A unit of measure; 1,000 mL or approximately 1 quart.

Tablespoon

A unit of volume commonly used in cooking to measure ingredients, equivalent to three teaspoons.

Drop

In a medical context, a small liquid measurement that is often used in medication dosages or to describe the volume of a substance.

Gtt

A medical abbreviation for "guttae," meaning drops; often used in prescriptions to specify medication dosages in drop form.