Gifford Construction Corporation Has Entered into a Long-Term Fixed Contract

Essay

Gifford Construction Corporation has entered into a long-term fixed contract to build a performing arts center for Philbin University.The fixed price is $71,500,000.The costs,estimated costs,and billing activity for the three years of the contract are shown below:
$\begin{array}{llrr}&201&2014&2015\\\text { Construction costs incurred to date } & 20,000,000 & 45,000,000 & 70,000,000 \\\text { Estimated future costs } & 35,000,000 & 30,000,000 & 0 \\\text { Billings to date } & 24,700,000 & 43,758,000 & 71,500,000 \\\text { Cash collections to date } & 20,995,000 & 41,570,100 & 71,500,000\end{array}$
Required:
a.Compute the gross profit to be recognized under the percentage-of-completion method on Gifford's income statements for each year under the contract.
b.Compute construction in progress net of billings under the percentage-of-completion method at the end of 2013 and 2014.Be sure to indicate whether the balance is classified as an asset or liability.
c.Compute the gross profit to be recognized under the completed contract method on Gifford's income statements for each year under the contract.
d.Which method is more conservative:the percentage-of-completion method or the completed contract method? Explain.