Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,700,000. The project was begun in 2020 and completed in 2021. Cost and other data are presented below: 2020 2021 Costs incurred during the year $ 486,500 $ 1,000,000 Estimated costs to complete 903,500 0 Billings during the year 455,000 1,245,000 Cash collections during the year 355,000 1,345,000
Assume that Beavis recognizes revenue upon completion of the project. Compute the amount of gross profit recognized during 2020 and 2021.

The gross profit in the year 2020 is $0

The gross profit in the year 2021  is $213,500

Explanation:

Since the profit recognition is upon completion of the project,no gross profit is recognized in the year 2020,all the gross profit is deferred till 2021 when the project would have been completed.

The profit to be recognized in the year 2021 is computed thus:

contract price                                                                 $1700,000

Costs incurred in the year 2020                                 ($486.500)

Costs incurred in the year 2021                                  ($1,000,000)

Gross profit                                                                    $ 213,500

The values given as estimated costs to complete cannot be used since we already have the actual costs.

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