On January 11, 2013, ProsCo signed a $2.60 million contract to construct an office and warehouse for a small wholesale company. The project was originally expected to be completed in two years, but difficulties in hiring a sufficient pool of skilled workers extended the completion date by an extra year. As well, significant increases in the price of steel in the second year resulted in cost overruns on the project. ProsCo was able to negotiate a partial recovery of these costs, and the total contract value was adjusted to $3.20 million in the second year. Additional information from the project is as follows:

	2013	2014	2015
Total contract value	$2,600,00	$3,200,000	$3,200,000
Accumulated costs to date	528,000	2,160,000	3,700,000
Estimated costs to complete the project	1,672,000	1,440,000	0
Customer billings to date	300,000	2,000,000	3,200,000
Cash collected to date	100,000	2,000,000	3,200,000

(A) Calculate the amount of gross profit to be recognized each year using the percentage-of-completion method.

	2013	2014	2015
Gross profit (loss) for the year

(B) Prepare all the required journal entries for the year ended December 31, 2014.

Assume that the increase in material costs has created significant uncertainty for the contract.
(C) Using the zero-profit method (IFRS), determine the amount of revenue and expense to report each year.

	2013	2014	2015
Revenue
Expense

Answer rating: 100% (QA)

2013 2014 2015 Total Contract Value 2600000 3200000 3200000 Accumulated Costs to Date 528000 2160000 3700000 Estimated Costs to Complete the Project 1... View the full answer