EXERCISE 18-9 (15-25 minutes)

(a)   Computation of Gross Profit to Be Recognized under Completed-      Con­tract Method.

        No computation necessary. No gross profit to be recognized prior to completion of contract.

        Computation of Billings on Uncompleted Contract in Excess of Related Costs under Completed-Contract Method.

        Construction costs incurred during the year                         $1,185,800

        Partial billings on contract (30% X $6,300,000)                      (1,890,000)

                                                                                                                  $  (704,200)

(b)   Computation of Gross Profit to Be Recognized under Percentage-of-Completion Method.

        Total contract price                                                                      $6,300,000

        Total estimated cost ($1,185,800 + $4,204,200)                        5,390,000

        Estimated total gross profit from contract                                    910,000

        Percentage-of-completion ($1,185,800/$5,390,000)                          22%

        Gross profit to be recognized during the year                        $   200,200

           ($910,000 X 22%)

        Computation of Billings on Uncompleted Contract in Excess of Related Costs under Percentage-of-Completion Method.

        Construction costs incurred during the year                         $1,185,800

        Gross profit to be recognized during the year (above)              200,200

                Total charged to construction-in-process                         1,386,000

        Partial billings on contract (30% X $6,300,000)                      (1,890,000)

                                                                                                                 $   (504,000)