Accounting for Long-Term Construction Contracts
the Board of Directors of Steelers

Essay

Accounting for long-term construction contracts
The board of directors of Steelers Construction Corp. is meeting to choose between the completed-contract method and the percentage-of-completion method of accounting for long-term contracts in the company's financial statements. You have been engaged to assist Steelers' controller in the preparation of a presentation to be given at the board meeting. The controller provides you with the following information:
1. Steelers commenced doing business on January 1, 2020.
2. Construction activities for the year ended December 31, 2020, were as follows:
$\begin{array}{c}\begin{array}{c}\\\underline{\text {Project}}\\\text {A}\\\text {B}\\\text {C}\\\text {D}\\\text {E}\\\\\end{array}\begin{array}{c}\text { Total contract }\\\underline{\text { Price }} \\ \$ 615,000 \\450,000 \\475,000 \\600,000 \\\underline{480,000 }\\\underline{ \$ 2,620,000} \\ \end{array}\begin{array}{c}\text {Billings through}\\\underline{12 / 31 / 20 }\\ \$ 340,000 \\135,000 \\475,000 \\240,000 \\\underline{400,000} \\\underline{ \$ 1,590,000} \\\end{array}\begin{array}{c}\text {Cash collections }\\\underline{ \text {through 12 / 31 / 20}} \\\$ 310,000 \\135,000 \\390,000 \\160,000 \\\underline{ 400,000 }\\\underline{ \$ 1,395,000 }\\\end{array}\end{array}$


$\begin{array}{c}\begin{array}{c}\\\underline{\text {Project}}\\\text {A}\\\text {B}\\\text {C}\\\text {D}\\\text {E}\\\\\end{array}\begin{array}{c}\text {Contract costs}\\\text {incurred through}\\ \underline{12 / 31 / 20} \\\$ 510,000 \\ 130,000 \\ 350,000 \\ 370,000 \\ \underline{320,000} \\ \underline{1,680,000} \\\end{array}\begin{array}{c}\text {Estimated}\\\text {additional costs to}\\\underline{ \text {complete contracts}}\\\$ 120,000 \\ 260,000 \\ -0- \\ 290,000 \\ \underline{80,000 }\\\underline{ \$ 70,000} \end{array}\end{array}$

3. Each contract is with a different customer.
4. Any work remaining to be done on the contracts is expected to be completed in 2021.
Instructions
a) Prepare a schedule by project, calculating the amount of gross profit (or loss) for the 2020 calendar year, which would be reported under:
(1) The completed-contract method.
(2) The percentage-of-completion method (baged on etimated costy).
b) Prepare the general journal entry to record revenue and gross profit on project B for 2020, assuming that the percentage-of-completion method is used.
c) Indicate the balances that would appear in the statement of financial position at December 31, 2020 for the following accounts for Project D, assuming that the percentage-of-completion method is used.
$\text {Accounts Receivable}$
$\text {Billings on Construction in Procect}$
$\text {Construction in Process}$
c) change (if at all) for Project D, if the completed-contract method is used?
d) How would the balances in the accounts discussed in part