Vaughan Construction Ltd. has entered into a contract beginning in February 2014 to build two…

Vaughan Construction Ltd. has entered into a contract beginning in February 2014 to build two warehouses for Atlantis Structures Ltd. The contract has a fixed price of $9.5 million. The following data are for the construction period: Instructions (a) Using the percentage-of-completion method, calculate the estimated gross profit that should be recognized during each year of the construction period. (b) Prepare all necessary journal entries for 2014 to 2016, including the entries to close the contract accounts upon completion, assun1ing the percentage-of-completion method is used. (c) Prepare a partial comparative income statement for the fiscal years ending December 31, 2014 to 2016, assuming the percentage-of-completion method is used. (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 loss that should be recognized during each year of the construction period, assuming the completed-contract method is used. Prepare any necessary entries to accrue contract losses (note the year the entry would be made). Prepare a partial income statement for the fiscal year ending December 31, 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 $400,000 instead of $1,270,000, what would be the effect on Vaughan’s financial statements in 2015? As a potential investor in Vaughan, what would be the Impact of Vaughan’s estimate on your decision to invest in the company? View Solution:
Vaughan Construction Ltd has entered into a contract beginning in

 

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