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Question: P18-11 (LO5,6,7) EXCEL (Long-Term Contract with an Overall Loss) On July 1, 2017, 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, 2019, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Gumbel for 2017, 2018, and 2019.

	At 12/31/17	At 12/31/18	At 12/31/19
Contract cost incurred to date	\)300,000	\(1,200,000	\)2,100,000
Estimated cost to complete contract	1,200,000	800,000	0
Billings to Gumbel	300,000	1,100,000	1,850,000

Instructions

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, 2017, 2018, and 2019. (Ignore income taxes.)

Step by step solution

01

Definition of Contract Cost

Contract cost can be defined total sacrifice that a business entity will make to fulfill the obligations under the contract.

02

Complete contract method to recognize profit or loss

Particular	2019 ($)
Revenue recognized	$1,900,000
Less: Cost to date	($2,100,000)
Loss	($200,000)

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