1. Penner Builders contracted to build a high-rise for €35,000,000.

Construction began in 2018

and is expected to be completed in 2020. Data for 2018 and 2019 are:
2018 2019
Costs incurred to date €4,500,000 €13,000,000
Estimated costs to complete 18,000,000 12,000,000

Penner uses the percentage-of-completion method.

Instructions
(a) How much gross profit should be reported for 2018? Show your computation.
(b) How much gross profit should be reported for 2019?
(c) Make the journal entry to record the revenue and gross profit for 2019.

*Solution 18-134
(a) €4,500,000
————— × €12,500,000 = €2,500,000
€22,500,000

(b) €13,000,000
—————— × €10,000,000 =€5,200,000
€25,000,000
Less 2018 gross profit 2,500,000
Gross profit in 2019 €2,700,000

(c) Construction in Process................................................................. 2,700,000

Construction Expenses.................................................................. 8,500,000
Revenue from Long-Term Contracts................................. 11,200,000

On February 1, 2017, Marsh Contractors agreed to construct a building at a contract price of

€17,400,000. Marsh estimated total construction costs would be $12,000,000 and the project
would be finished in 2019. Information relating to the costs and billings for this contract is as
follows:
2017 2018 2019
Total costs incurred to date €4,500,000 €7,920,000 €13,800,000
Estimated costs to complete 7,500,000 5,280,000 -0-
Customer billings to date 6,600,000 12,000,000 16,800,000
Collections to date 6,000,000 10,500,000 16,500,000
Instructions
Fill in the correct amounts on the following schedule. For percentage-of-completion accounting
and for cost-recovery accounting, show the gross profit that should be recorded for 2017, 2018,
and 2019.
*Ex. 18-135 (cont.)

Percentage-of-Completion Cost-Recovery
Gross Profit Gross Profit
2017 ____________ 2017 ____________

2018 ____________ 2018 ____________

2019 ____________ 2019 ____________

*Solution 18-135
Percentage-of-Completion Cost-Recovery
Gross Profit Gross Profit
2017 €2,025,000a 2017 —
2018 € 495,000b 2018 —
2019 €1,080,000c 2019 $3,600,000d
a
€4,500,000
—————— × €5,400,000 = €2,025,000
€12,000,000

b
€`7,920,000
—————— × €4,200,000 = €2,520,000
€13,200,000

2017 gross profit (2,025,000)

2018 gross profit € 495,000
c
Total revenue €17,400,000
Total costs 13,800,000
Total gross profit 3,600,000
Recognized to date (2,520,000)
2019 gross profit € 1,080,000
d
Total revenue €17,400,000
Total costs 13,800,000
Total gross profit € 3,600,000