(Long-term Contract with an Overall Loss)
On July 1, 2012, Torvill Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of $1,900,000. On July 1, Torvill estimated that it would take between 2 and 3 years to complete the building. On December 31, 2014, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Gumbel for 2012, 2013, and 2014.
| At 12/31/12 | At 12/31/13 | At 12/31/14 | |
| Contract costs incurred | 300,000 | 1,200,000 | 2,100,000 |
| Estimated costs to complete the contract | 1,200,000 | 800,000 | – |
| Billings to Gumbel | 300,000 | 1,100,000 | 1,850,000 |
Instructions:
a. 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, 2012, 2013, 2014. (Ignore income taxes).
b. 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 31, 2012, 2013, and 2014 (Ignore income taxes).
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