Problem 3

An entity entered into a construction contract to build a condo building at a fixed price of $54,000,000. Construction started in 20x0 and ended in 20x3. Data on the contract is as follows (in 000s):

20x0 20x1 20x2 20x3

Costs incurred during the year $ 6500 19500 25000 5800

Estimated costs to complete 38500 26000 6500 -

Billings 18000 18000 - 18000

For each of the parts below, prepare the mini income statement for the project for each year and calculate the net investment of the project that will be shown on the balance sheet at the end of each year.

a. The entity uses an input based approach to calculating the percentage of completion.

b. The entity uses an output based approach to calculating the percentage of completion and has calculated the percentages of completion as follows: 20x0:16% | 20x1: 60% | 20x2: 90% | 20x3: 100%