Question
Question 3 (3.5 points): On January 1, 2020, ABC Company signed a contract to build an office to XYZ Company for a total price of
Question 3 (3.5 points): On January 1, 2020, ABC Company signed a contract to build an office to XYZ Company for a total price of $6,000,000. The following are the estimated costs to complete
12/31/2020 | 12/31/2021 | 12/31/2022 | |
Costs incurred to date | 1,500,000 | 2,640,000 | 4,600,000 |
Estimated cost to complete | 2,500,000 | 1,760,000 | 0 |
Billings to date | 2,200,000 | 4,000,000 | 6,000,000 |
Cash received to date | 2,000,000 | 3,500,000 | 6,000,000 |
a. Using the percentage-of-completion method, compute the profit or loss to be recognized for the years ended December 31, 2020, 2021, and 2022. b. Prepare the necessary journal entries for the Year 2020, 2021, and 2022. c. Repeat part a, assume that the Estimated cost to complete in 2021 is 4,000,000 (Instead of 1,760,000). (ONLY compute the profit or loss in 2021 and 2022) d. Repeat part a, assuming ABC uses cost-recovery method. e. Explain the reason for companies to use the cost-recovery method.
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