On January 1, Year 1, a construction company, Build Inc entered a three-year contract to erect a building for a customer. Its original bid on the job was for $3,600,000 but this was revised upward in year 3 to $3,900,000 because the customer negotiated for some "extras" (modification in the original specifications). A cumulative history of costs incurred and cost expectations throughout the three years the contract was in progress is set out below. It has been estimated that the construction will ends after 3 years on December 31, Year 3
Year 1
Year 2
Year 3
Expected revenues
$3,600,000
$3,600,000
$3,900,000
Actual costs (cumulative)
750,000
2,550,000
3,270,000
Expected future costs
2,250,000
525,000
-0-
Cash collected to date
1,00,000
2,500,000
3,900,000
Required:
a. Using the percentage-of-completion method, calculate the estimated gross profit that would be recognized during each year of the construction period. Round the percentage complete to the nearest whole percentage point.
b. Using the zero-profit method, repeat part (a).