Question
The board of directors of Metlock Construction Company is meeting to choose between the completed-contract method and the percentage-of-completion method of accounting for long-term contracts
The board of directors of Metlock Construction Company 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 Metlock's controller in the preparation of a presentation to be given at the board meeting. The controller provides you with the following information:
1. | Metlock commenced doing business on January 1, 2021. | |||||||||||
2. | Construction activities for the year ended December 31, 2021, were as follows: | |||||||||||
Project | Total Contract Price | Billings Through 12/31/21 | Cash Collections Through 12/31/21 | Contract Costs Incurred Through 12/31/21 | Estimated Additional Costs to Complete Contracts | |||||||
A | $ 498,000 | $ 338,000 | $ 308,000 | $ 422,000 | $ 99,000 | |||||||
B | 718,000 | 208,000 | 208,000 | 192,000 | 448,000 | |||||||
C | 474,000 | 473,000 | 388,000 | 348,000 | -0- | |||||||
D | 199,000 | 98,000 | 64,000 | 121,000 | 95,000 | |||||||
E | 448,000 | 398,000 | 398,000 | 318,000 | 79,500 | |||||||
$2,337,000 | $1,515,000 | $1,366,000 | $1,401,000 | $721,500 | ||||||||
3. | Each contract is with a different customer. | |||||||||||
4. | Any work remaining to be done on the contracts is expected to be completed in 2022. |
Compute the amount of income (or loss) before selling, general, and administrative expenses for the year ended December 31, 2021, which would be reported under:
(1) | The completed-contract method. | $ | ||
(2) | The percentage-of-completion method (based on estimated costs). | $
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Indicate the balances that would appear in the balance sheet at December 31, 2021 for the following accounts for Project D (fourth project), assuming that the percentage-of-completion method is used.
Accounts Receivable | $ | |
Billings on Construction in Process | $ | |
Construction in Process | $
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