E 5-9 Long-term contract; percentage-of-completion and completed contract methods
Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The project began in 2011 and was completed in 2012. Data relating to the contract are summarized below:
2011 2012 costs incurred during the year $300,000 $1,575,000 Estimated costs to complete as of 12/31 1,200,000 -0- Billing during the year 380,000 1,620,000 cash collections during the year 250,000 1,750,000
Required:
1. Compute the amount of gross profit or loss to be recognized in 2011 and 2012 using the percentage-of-completion method.
2. Compute the amount of gross profit or loss to be recognized in 2011 and 2012 using the completed contract method.
3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2011 using the percentage-of-completion method.
4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2011 using the completed contract method.
