In January 2024, Burrard Shipyards Ltd. (“BSL”) was awarded a $42-million contract to construct a non-combat hospital ship for the Royal Canadian Navy. The contract was part of the federal government’s program to refit the Royal Canadian Navy and enable it to play a greater role in peace-keeping and humanitarian missions. BSL estimated that it would take three years to take the project from planning through to completion. The company has a December 31 year end and uses the percentage-of-completion method, with completion measured as the ratio of costs incurred to date to the total estimated construction costs. As the ship was being constructed to meet the unique specifications of the Royal Canadian Navy, BSL had no alternative use for it. BSL’s contract provides it with an enforceable right to payment for its performance to date, including a reasonable profit margin, in the event of contract cancellation. BSL had the following information available in relation to this construction contract:

Required 

a. Determine the percentage of completion, revenue, and gross profit to be recognized for each year of the contract. 

b. Prepare all necessary journal entries for each year of the contract.

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Costs incurred during the year Total costs incurred to date Estimated costs to complete Estimated total project cost Progress billings during the year Cash collected during the year 2024 $ 9,282,000 9,282,000 26,418,000 35,700,000 13,000,000 11,500,000 2025 $17,802,000 27,084,000 9,516,000 36,600,000 19,000,000 18,200,000 2026 $9,116,000 36,200,000 36,200,000 10,000,000 12,300,000