Question 1 - Rex's Reclaimers entered into a contract with Dan's Demolition to manage the processing of recycled materials on Dan's various demolition projects. Services for the 3-year contract include collecting, sorting, and transporting reclaimed materials to recycling centers or contractors who will reuse them. Rex's incurs selling commission costs of $2,280 to obtain the contract. Before performing the services, Rex's also designs and builds specialty receptacles and loading equipment that interfaces with Dan's demolition equipment at a cost of $30,780. These receptacles and equipment are retained by Rex's. Dan's promises to pay a fixed fee of $13,680 per year, payable every 6 months for the services under the contract. Rex's incurs the following costs: design services for the receptacles to interface with Dan's equipment $3,420, loading equipment controllers $6,840, and special testing and OSHA inspection fees $2,280 (some of Dan's projects are on government property).
(a) Determine the costs that should be capitalized as part of Rex's Reclaimers revenue arrangement with Dan's Demolition.
Question 2 - Shanahan Construction Company has entered into a contract beginning January 1, 2014, to build a parking complex. It has been estimated that the complex will cost 5492,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $738,000. The following data pertain to the construction period.
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2014
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2015
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2016
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Cost to date
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$221,400
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$369,000
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$500,200
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Estimated costs to complete
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270,600
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123,000
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0
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Progress billings to date
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221,400
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451,000
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738,000
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Cash collected to date
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196,800
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410,000
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738,000
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Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period.
Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period.
Question 3 - On March 1, 2014, Pechstein Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $6,384,000. The building was completed by October 31, 2016. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2014, 2015, and 2016 are given below.
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2014
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2015
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2016
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Contract costs incurred during the year
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$2,188,800
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$1,694,800
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$1,664,400
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Estimated costs to complete the contract at 12/31
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2,675,200
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1,664,400
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0
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Billings to Fabrik during the year
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2,432,000
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2,660,000
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1,292,000
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Using the percentage-of-completion method, compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2014, 2015, and 2016. (Ignore income taxes.)
Using the completed-contract method, compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2014, 2015, and 2016. (Ignore incomes taxes.)