Cosky Construction Company is involved in a long-term construction contract to build an office building. The estimated cost is $60 million and the contract price is $90 million. Additional information follows:

Year Cash Collections Actual Costs Incurred

2012................$18,000,000...............................$12,000,000

2013..................30,000,000.................................20,000,000

2014..................15,000,000.................................10,000,000

2015..................27,000,000.................................18,000,000

......................$90,000,000...............................$60,000,000

The project is completed in 2015 as scheduled and all cash collections related to the contract have been received.

Instructions

Prepare a schedule to determine the revenue, expense, and gross profit for each year of the contract using the percentage-of-completion method. Round calculations to two decimal places.

Taking It Further

Assume instead that by the end of 2012, Cosky Construction had problems with the office building as it discovered that the foundation was leaking and it was not able to reliably estimate the costs to fix the foundation and complete the building. Would it still be appropriate to use the percentage-of-completion method? Explain.