FA6 Problem:Long Term Contracts – Percentage of Completion - Hong Incorporated

FA6 Problem:Long Term Contracts – Percentage of Completion - Hong Incorporated

Hong Incorporated (“HI”) entered a contract with Zed Limited (“ZL”) to build a manufacturing plant. It was estimated that it would take 3 years to complete the project and it was priced at $2.1 million. Other financial information related to the contract is as follows.Year 1 Year 2 Year 3Cost incurred during the year 340,00054,8001,105,200Estimated cost to complete 660,0001,015,200--Billings 700,000700,000700,000Collection during the year 500,000650,000950,000 HI uses the 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