Question

Osborn Construction Company began operations January 2, 2013.  During the year, Osborn entered into a contract

with Redbeard Razor Corporation to construct a manufacturing facility.  At that time, Osborn estimated that ti would take 5 years to complete the facility at a total cost of $4,800,000.  The total contract price for construction of the facility is 4,800,000.  During the year, Osborn incurred $1,250,000 in construction costs related to the construction project.  The estimated cost to complete the contract is $3750,000.  Redbeard was billed and paid 30% of the contract price.

If an amount is zero, enter zero. 

1. Compute the amount of gross profit to be recognized for the year ended December 31, 2013 under the completed-contract method.

Prepare schedules to compute the amount of gross profit to be recognized for the year ended December 31, 2013, and the amount to be shown as “cost of uncompleted contract in excess of related billings” or “billings on uncompleted contract in excess of related costs” on December 31, 2013, under the following methods:

1. Completed-contract method

Construction costs incurred during the year

Partial billings on contract

Billings on uncompleted contract in excess of related costs

2.a. Percentage-of-completion method (Computation of Gross Profit)

Total contract price

Total estimated cost

Estimated total gross profit from contract

Percentage of completion

Gross profit recognized during the year

2.b. Percentage-of-completion method (Computation of Billings on Uncompleted Contract)

Construction costs incurred during the year

Gross profit recognized during the year

Total charged to construction in progress

Partial billings on contract

Billings on uncompleted contract in excess of related costs

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