Bower Construction Comp has consistently used the percentage of completion method for recognizing revenue on its long term contracts During 2010 Bower entered into a fixed price contract to construct an office building for $8,000,000 Information relating to the contract is as follows 2010 2011 2012 Percent Complete 25 70 100 Estimated Total Cost at Completion $5,600,000 $6,400,000 $6,500,000 Gross Profit Recognized to date 600,000 1,120,000 Required (Show Calculations) 1 Compute contract costs incurred during 2010, 2011 and 2012 2 Determine how much gross profit Bower should recognize in 2012 3 Under what conditions would it not be reasonable for a company to use the percentage of completion method of recognizing revenue on long term contracts 4 If Bower had used the completed contract method of accounting for this long term contract how much gross profit would it have earned in 2010, 2011 and 2012

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Question: Bower Construction Comp. has consistently used the percentage-of-completion method for recognizing revenue on its long-term contracts. During 2010 Bower entered into a fixed-price contract to

Bower Construction Comp. has consistently used the percentage-of-completion method for recognizing revenue on its long-term contracts. During 2010 Bower entered into a fixed-price contract to construct an office building for $8,000,000. Information relating to the contract is as follows:

	2010	2011	2012
Percent Complete	25%	70%	100%
Estimated Total Cost at Completion	$5,600,000	$6,400,000	$6,500,000
Gross Profit Recognized to date	600,000	1,120,000	?

Required (Show Calculations):

1.	Compute contract costs incurred during 2010, 2011 and 2012.
2.	Determine how much gross profit Bower should recognize in 2012.
3.	Under what conditions would it not be reasonable for a company to use the percentage of completion method of recognizing revenue on long-term contracts?
4.	If Bower had used the completed contract method of accounting for this long-term contract how much gross profit would it have earned in 2010, 2011 and 2012?

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