Question

Daisy Construction Ltd. has entered into a contract beginning January 1, 2014, to build a parking complex. It has estimated that the complex will cost $8 million and will take three years to construct.
The complex will be billed to the purchasing company at $ 11 million. The details are as follows:
Instructions
(a) Using the percentage-of-completion method, calculate the estimated gross profit that would be recognized during each year of the construction period. Round percentages to two decimal places.
(b) Prepare all necessary journal entries for 2014 to 2016, including the entries for closing the contract accounts upon completion, assuming the percentage-of-completion method is used.
(c) Prepare a partial comparative income statement for the fiscal years ending December 31, 2014 and 2015.
(d) Prepare a balance sheet at December 31, 2014 and 2015, that shows the accounts related to the contract and includes their classifications assuming the percentage-of-completion method is used.
(e) Calculate the estimated gross profit that would be recognized during each year of the construction period if the completed-contract method is used. Prepare a partial income statement for the fiscal year ending December 31, 2016.
(f) Prepare the necessary entries in 2016 to close the contract accounts and to recognize the revenues and costs upon completion, assuming the completed-contract method is used.
(g) Prepare a balance sheet at December 31, 2014 and 2015, that shows the accounts related to the contract and includes their classifications assuming the completed-contract method is used.
(h) Assume that Daisy Construction cannot reliably measure the outcome of the contract. Explain how this transaction would be accounted for:
1. If Daisy is reporting under current IFRS (IAS 11 and 18).
2. If Daisy is reporting under ASPE.
(i) From the perspective of a creditor, evaluate Daisy's liquidity based on the financial statements prepared under the percentage-of-completion method versus the completed-contract method.


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  • CreatedSeptember 18, 2015
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