Star Construction Corporation has a contract to construct a building for $10,950,000. The building is controlled by the customer throughout the term of the contract. Total costs to complete the building were originally estimated at $8,850,000. Construction commenced on 4 February 20×5. Actual costs were in line with estimated costs for 20×5 and 20×6. In 20×7, actual costs exceeded estimated costs by $150,000.

Total construction costs incurred in each year were as follows:

20X5: $2,700,000
20X6: $4,500,000
20X7: $1,800,000

Progress billings based on the amount of work completed were collected each year. Star Construction uses the percentage-of-completion method. The percentage-of-completion is based on costs incurred compared with estimated total costs of the project.

Company also billed the client and collected the following payments

Year	Billings	Payments Received
20X5:	$2,300,000	$2,100,000
20X6:	$4,900,000	$4,700,000
20X7:	$3,750,000	$4,150,000

Required:

Calculate Net income for the construction project for each of the three years:

a) Completed contract method?
20X5: $______________ 20X6: $__________________ 20X7____________________.

b) Percentage-of-completion method? (basis: estimated costs to complete)
20X5: $______________ 20X6: $__________________ 20X7____________________.

Answer rating: 100% (QA)

a Completed contract method 20X5 0 20X6 0 20X7 1950000 The total profit on the contract will be reco... View the full answer