Blue Jays Company has a non-cancellable contract to construct a bridge for a revenue of $ 1,950,000. The contract is to start in July 2020, and the bridge is to be completed in September 2022. The following data pertain to the construction period.

2020 2021 2022

Costs incurred during the year $360,000 $900,000 $390,000.

Estimated costs to complete $1,260,000 $380,000 $ -

Instructions

Part 1 - Blue Jays Company uses the percentage of completion method, calculate the gross profit for this contract for the years 2020, 2021 and 2022. Show supporting calculations. (12 marks)

Part 2 You are hired as the new Accounting Manager of Blue Jays. On your first day reporting to work, you are told by the CFO, Blue Jays is considering accounting for some short-term construction contracts using the completed-contract method. Briefly explain the feasibility of such a method and provide the advantages and disadvantages of this method. (3 marks)