In January 2010, XYZ began construction on a storage facility for ABC company. The

construction was completed on December 10, 2012. The president of XYZ has

consulted with the controller regarding estimated costs for the project and the

resulting profit.

During her discussions with the controller, she was informed that XYZ used the

completed contract method to account for the construction project. The president

asked the controller about the percentage of completion method. She is concerned

about recognizing all the profit in a single year.

She has asked you to prepare a schedule showing the effect on the balance sheet and

income statement of the percentage-of-completion versus the completed contract

method.

The following information was provided regarding the construction project:

Costs for 2010= $3,200,000

Costs for 2011=$5,760,000

Costs for 2012=$3,840,000

Estimated costs to complete as of the end of 2010=$10,800,000

Estimated costs to complete as of the end of 2011=$4,000,000

Estimated costs to complete as of the end of 2012=$0

Billings to ABC in 2010=$ 3,000,000

Billings to ABC in 2010=$ 5,000,000

And the remaining billings occurred in 2012

The contract price was $18,000,000

a. Prepare a schedule showing how much gross profit is recognized for

years 2010, 2011, and 2012 under the percentage of completion.

b. Prepare a schedule showing how much gross profit is recognized for

years 2010, 2011, and 2012, under the completed-construction method.

Current Liabilities and Contingencies: CPC-1

The controller for XYZ neglected to have her staff accrue the payroll for the final

work week in December, 2012. The following data should have been considered and

accounted for in XYZ