Question 1 - Bruner Constructors, Inc. has consistently used the percentage-of-completion method of recognizing income. In 2014, Bruner started work on a $42,000,000 construction contract that was completed in 2015. The following information was taken from Bruner's 2014 accounting records:
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Progress billings
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$13,200,000
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Costs incurred
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12,600,000
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Collections
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8,400,000
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Estimated costs to complete
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25,200,000
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What amount of gross profit should Bruner have recognized in 2014 on this contract?
Question 2 - In 2015, Fargo Corporation began construction work under a three-year contract. The contract price is $4,800,000. Fargo uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2015, follow:
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Balance Sheet
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Accounts receivable-construction contract billings
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$200,000
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Construction in progress
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$600,000
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Less contract billings
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480,000
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Costs and recognized profit in excess of billings
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120,000
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Income Statement -
Income (before tax) on the contract recognized in 2015 $120,000
What was the initial estimated total income before tax on this contract?