Problem: (Long-Term Contract with an Overall Loss)
On July 1, 2007, Kyung-wook Construction Company Inc. contracted to build an office building for Mingxia Corp. for a total contract price of $1,950,000.
On July 1, Kyung-wook estimated that it would take between 2 and 3 years to complete the building. On December 31, 2009, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Mingxia for
2007, 2008, and 2009.
At 12/31/07 At 12/31/08 At 12/31/09
Contract costs incurred to date $ 150,000 $1,200,000 $2,100,000
Estimated costs to complete the contract 1,350,000 800,000 -0-
Billings to Mingxia 300,000 1,100,000 1,850,000
Instructions:
(1) Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2007, 2008, and 2009.
(Ignore income taxes.)
(2) Using the completed-contract method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 2007, 2008, and 2009. (Ignore income taxes.)