Q2. Percentage-of-completion and completed-contract methods.

On February 1, 2010, Marsh Contractors agreed to construct a building at a contract price of $6,000,000. Marsh estimated total construction costs would be $4,000,000 and the project would be finished in 2012. Information relating to the costs and billings for this contract is as follows:

2010 2011 2012

Total costs incurred to date $1,500,000 $2,640,000 $4,600,000

Estimated costs to complete 2,500,000 1,760,000 -0-

Customer billings to date 2,200,000 4,000,000 5,600,000

Collections to date 2,000,000 3,500,000 5,500,000

Instructions

a) Fill in the correct amounts on the following schedule. Compute the gross profit that should be recorded for 2010, 2011, and 2012 under the percentage-of-completion and completed-contract accounting method. Show your calculations.

Percentage-of-Completion Completed-Contract

Gross Profit Gross Profit

2010 ___________ 2010 ___________

2011 ___________ 2011 ___________

2012 ___________ 2012 ___________

b) Provide journal entries to record gross profit and revenue for 2010 and 2011 under the percentage-of-completion method.