QUESTION 5.5

(35 marks total)

The board of directors for Apache Construction Corp. is meeting to choose between the completed-contract method and the percentage-of-completion method of accounting for long-term contracts in the company's financial statements. You have been engaged to assist Apache's controller in the preparation of a presentation to be given at the board meeting. The controller provides you with the following information:

1.Apache commenced doing business on January 1, 2018.

2.Construction activities for the year ended December 31, 2018, were as follows:

Total contractBillings throughCash collections through

Project Price 12/31/1812/31/18

A

$ 615,000

$ 340,000

$ 310,000

B

450,000

135,000

135,000

C

475,000

475,000

390,000

D

600,000

240,000

160,000

E

480,000

400,000

400,000

$ 2,620,000

$ 1,590,000

$ 1,395,000

Contract costs incurred Estimated additional costs to

Project through 12/31/18 complete contracts

A$ 510,000 $ 120,000

B130,000 260,000

C350,000 -0-

D370,000 290,000

E320,000 80,000

$ 1,680,000 $ 750,000

1.Each contract is with a different customer.

2.Any work remaining to be done on the contracts is expected to be completed in 2019.

Required

1.(16 marks)Prepare a schedule by project, calculating the amount of gross profit (or loss) for the 2018 calendar year, which would be reported under:

a.The completed-contract method.

b.The percentage-of-completion method (based on estimated costs).

2.(6 marks)Prepare the general journal entry to record revenue and gross profit on project B for 2018, assuming that the percentage-of-completion method is used.

3.(10 marks)Indicate the balances that would appear in the statement of financial position at December 31, 2018 for the following accounts for Project D, assuming that the percentage-of-completion method is used.

oAccounts Receivable

oBillings on Construction in Process o Construction in Process

4.(3 marks) How would the balances in the accounts discussed in part 3 above change (if at all) for Project D, if the completed-contract method is used?