EXERCISE 18-6 (10-12 minutes)

BRAD BRIDGEWATER, INC.

          Computation of Gross Profit to Be

Recognized on Uncompleted Contract

Year Ended December 31, 2004

_____________________________________________________________

Total contract price

        Estimated contract cost at completion                                     $2,000,000

             ($700,000 + $1,300,000)

        Fixed fee                                                                                               450,000

                Total                                                                                            2,450,000

        Total estimated cost                                                                        2,000,000

        Gross profit                                                                                          450,000

        Percentage of completion ($700,000 ÷ $2,000,000)                            35%

        Gross profit to be recognized ($450,000 X 35%)                     $   157,500

:.0001pt;tab-stops:30.0pt right 492.0pt 497.0pt'>(The initial estimated total gross profit before tax on the contract.)

le='tab-stops:30.0pt 60.0pt right dotted 318.0pt blank 405.0pt 504.0pt'>        Sales Revenue—Texts*.................................            80,000

        Allowance for Returns...................................       1,920,000

        Accounts Receivable.....................................                               16,000,000

        *A debit to either Sales Revenue—Texts or Sales Returns could be made here.

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