Question

Granite Engineering Ltd. has entered into a contract beginning January 1, 2013, to build a bridge in Tuktoyuktuk Shores. It estimates that the bridge will cost $14.8 million and will take three years to construct.
The bridge will be billed to the municipality at $15.5 million. The following data are for the construction period:
Instructions
Under the earnings approach:
(a) Using the percentage-of-completion method, calculate the estimated gross profit or Joss 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 or Joss that would be recognized during each year of the construction period under the completed-contract method. Prepare any necessary entries to accrue contract losses (note the year the entry would be made). Prepare partial income statements for the fiscal years ending December 31, 2015 and 2016.
(f) Prepare the necessary entry in 2016 to close the contract accounts and to recognize the revenues and costs upon completion, assun1ing 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) If in 2015 estimated cost to complete construction is $1,700,000 instead of $1,934,000, what would be the effect on Granite's financial statements in 2015? As a potential investor in Granite, what would be the impact of Granite’s; estimate on your decision to invest in the company?


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  • CreatedSeptember 18, 2015
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