Cressida Construction Company uses the percentage of completion method when total construction costs can be estimated. In 2014, Cressida began building a warehouse for Weller Furniture Company for $10,000,000 with the following details.

		12/31/14		12/31/15		12/31/16
Costs incurred to date		$2,000,000		$3,000,000		$8,500,000
Estimated costs to complete		5,000,000		5,500,000		-
Billings to date		7,000,000		8,000,000		10,000,000
Collections to date		3,000,000		6,000,000		10,000,000

Instructions:

Determine the amount of gross profit/loss that Cressida Construction Company will recognize in years 2014 2016, using the percentage-of-completion method. The contract was completed in the year 2016.

Prepare all journal entries related to this construction project for the year 2015 only under the percentage of completion method.

Suppose that Cressida Construction Company was not able to use the percentage-of-completion method and, instead, had to use the completed-contract method. How much gross profit would Cressida Construction Company recognize in years 2014 2016 under this method?

What is the difference between a permanent loss (on a contract) and an interim loss.When do companies report permanent losses?

List one benefit of using the percentage-of-completion and one benefit of using the completed-contract method to recognize revenue.

Which method (percentage-of-completion or completed-contract method) will recognize the most gross profit OVERALL on the contract?