Bower Construction Comp.has consistently used the percentage-of-completion method for recognizing revenue on its long-term contracts.During 2010 Bower entered into a fixed-price contract to construct an office building for $8,000,000.Information relating to the contract is as follows:

Required (Show Calculations):
1.Compute contract costs incurred during 2010,2011 and 2012.
2.Determine how much gross profit Bower should recognize in 2012.
3.Under what conditions would it not be reasonable for a company to use the percentage of completion method of recognizing revenue on long-term contracts?
4.If Bower had used the completed contract method of accounting for this long-term contract how much gross profit would it have earned in 2010,2011 and 2012?

Question

Bower Construction Comp.has consistently used the percentage-of-completion method for recognizing revenue on its long-term contracts.During 2010 Bower entered into a fixed-price contract to construct an office building for $8,000,000.Information relating to the contract is as follows:
  
Required (Show Calculations):
1.Compute contract costs incurred during 2010,2011 and 2012.
2.Determine how much gross profit Bower should recognize in 2012.
3.Under what conditions would it not be reasonable for a company to use the percentage of completion method of recognizing revenue on long-term contracts?
4.If Bower had used the completed contract method of accounting for this long-term contract how much gross profit would it have earned in 2010,2011 and 2012?

Quizplus · Accepted Answer

The Answer of Bower Construction Comp.has consistently used the percentage-of-completion method for recognizing revenue on its long-term contracts.During 2010 Bower entered into a fixed-price contract to construct an office building for $8,000,000.Information relating to the contract is as follows:
  
Required (Show Calculations):
1.Compute contract costs incurred during 2010,2011 and 2012.
2.Determine how much gross profit Bower should recognize in 2012.
3.Under what conditions would it not be reasonable for a company to use the percentage of completion method of recognizing revenue on long-term contracts?
4.If Bower had used the completed contract method of accounting for this long-term contract how much gross profit would it have earned in 2010,2011 and 2012?