Pagano Construction Company Case Study

Register to read the introduction… Compute the amount of gross profit or loss to be recognized in 2006 and 2007 using the percentage-of-completion method.
2. Compute the amount of gross profit or loss to be recognized in 2006 and 2007 using the completed contract method.
3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2006 using the percentage-of completion method.
4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2006 using the completed contract method.

Exercise 5-3
Percentage-of-completion method; loss projected on entire project

( LO4 On April 13, 2006, the Pagano Construction Company entered into a three-year construction contract to build a mall for a price of $12,000,000. During 2006, costs of $3,000,000 were incurred with estimated costs of $6,000,000 yet to be incurred. Billings of $3,800,000 were sent and cash collected was …show more content…
2007 billings were $3,500,000 and $3,600,000 cash was collected. The project was completed in 2008 after additional costs of $5,800,000 were incurred. The company’s fiscal year-end is December 31. Arrow uses the percentage-of-completion method.

Required:
1. Calculate the amount of gross profit or loss to be recognized in each of the three years.
2. Prepare journal entries for 2006 and 2007 to record the transactions described (credit “Various accounts” for construction costs incurred).
3. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2006 and 2007.

Exercise