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
|
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____________________.