On January 11, 2013, ProsCo signed a $2.60 million contract to construct an office and warehouse for a small wholesale company. The project was originally expected to be completed in two years, but difficulties in hiring a sufficient pool of skilled workers extended the completion date by an extra year. As well, significant increases in the price of steel in the second year resulted in cost overruns on the project. ProsCo was able to negotiate a partial recovery of these costs, and the total contract value was adjusted to $3.20 million in the second year. Additional information from the project is as follows:
2013 2014 2015 Total contract value $2,600,00 $3,200,000 $3,200,000 Accumulated costs to date 528,000 2,160,000 3,700,000 Estimated costs to complete the project 1,672,000 1,440,000 0 Customer billings to date 300,000 2,000,000 3,200,000 Cash collected to date 100,000 2,000,000 3,200,000
(A) Calculate the amount of gross profit to be recognized each year using the percentage-of-completion method.
2013 2014 2015 Gross profit (loss) for the year
(B) Prepare all the required journal entries for the year ended December 31, 2014.
Assume that the increase in material costs has created significant uncertainty for the contract.
(C) Using the zero-profit method (IFRS), determine the amount of revenue and expense to report each year.
2013 2014 2015 Revenue Expense
(D) Using the completed-contract method (ASPE), determine the amount of revenue and expense to report each year.
2013 2014 2015 Revenue Expense
On January 11, 2013, ProsCo signed a $2.60 million contract to construct an office and warehouse for a small wholesale company. The project was originally expected to be completed in two years, but difficulties in hiring a sufficient pool of skilled workers extended the completion date by an extra year. As well, significant increases in the price of steel in the second year resulted in cost overruns on the project. ProsCo was able to negotiate a partial recovery of these costs, and the total contract value was adjusted to $3.20 million in the second year. Additional information from the project is as follows:
| 2013 | 2014 | 2015 | |
| Total contract value | $2,600,00 | $3,200,000 | $3,200,000 |
| Accumulated costs to date | 528,000 | 2,160,000 | 3,700,000 |
| Estimated costs to complete the project | 1,672,000 | 1,440,000 | 0 |
| Customer billings to date | 300,000 | 2,000,000 | 3,200,000 |
| Cash collected to date | 100,000 | 2,000,000 | 3,200,000 |
(A) Calculate the amount of gross profit to be recognized each year using the percentage-of-completion method.
| 2013 | 2014 | 2015 | |
| Gross profit (loss) for the year |
(B) Prepare all the required journal entries for the year ended December 31, 2014.
Assume that the increase in material costs has created significant uncertainty for the contract.
(C) Using the zero-profit method (IFRS), determine the amount of revenue and expense to report each year.
| 2013 | 2014 | 2015 | |
| Revenue | |||
| Expense |
(D) Using the completed-contract method (ASPE), determine the amount of revenue and expense to report each year.
| 2013 | 2014 | 2015 | |
| Revenue | |||
| Expense |
