FA4 Problem:Long Term Contracts – Percentage of Completion - Babra Limited

FA4 Problem:Long Term Contracts – Percentage of Completion - Babra Limited

Babra Limited (“BL”) entered a contract with Auger Company to build a manufacturing facility.It was estimated that it would take 3 years to complete the project and it was priced at $ 4.5million. Details related to the contract are as follows (in 000’s):Year 1 Year 2 Year 3Cost incurred during the year 1,2321,4661,110Estimated cost to complete 2,6181,102--Billings 1,0001,2502,250Collections during the year 9501,1002,450 BL uses percentage of completion method to account for long-term construction contracts.Required:1.

Calculate the profit that should be recognized each year.2.

Calculate the asset account balances for each of the 3 years.3.

Calculate the profit that should be reported each year if the company uses the completedcontract method