Question 3

Free Form Builders Inc., a construction company, recognizes revenue from its long-term contracts using the percentage-of-completion method. On March 29, 2017, the company signed a contract to construct a building for $1 million. The company estimated that it would take four years to complete the contract and estimated the cost to the company at $625,000, as follows:

Year Cost

2017 $100,000

2018 $150,000

2019 $175,000

2020 $200,000

Total $625,000

The actual costs in 2017 and 2018 ended up being exactly as estimated. At the end of 2017, Free Form expected costs for 2018-2020 to be exactly as estimated. However, on December 31, 2018, the date Free Form closes its books (the books have not been closed yet), the company revised its estimates for the costs in 2019 and 2020. It estimated that it would cost $200,000 in 2019 and $300,000 in 2020 to complete the contract. 2019's actual costs were $100,000 more than estimated. At the end of 2019, the estimated costs to complete the contract were $400,000. 2020's actual costs ended up being $50,000 less than estimated.

Required:

Compute the revenue, expense, and profit/loss for each of the four years. Use FOUR DECIMAL PLACES (for calculation of percentage completed).