For 2020, the journal entry of Arizona Desert Homes (ADH) to record revenue is as follows:
2020:
Debit Accounts Receivable $2,010,000 ($3,000,000 x 67%)
Credit Construction Revenue $2,010,000
- To record the revenue for 2020 based on the percentage of completion.
<h3>What is the percentage of completion method?</h3>
The percentage of completion method is used to recognize revenue for a long-term contract by computing the percentage of completion for each period based on the costs to completion.
The method is used when ADH recognizes revenue over time instead of at the end of the contract (or contract completion).
Revenue is <u>recognized over time</u> if:
- Economic benefits of the provided asset are consumed by the customer as the entity performs.
- The entity's performance creates or enhances an asset controlled by the customer as the asset is created or enhanced.
<h3>Data and Calculations:</h3>
Contract amount Cost: Gross profit: Contract billings:
2020 $3,000,000 $1,200,000 $800,000 $1,500,000
2021 600,000 400,000 1,500,000
<h3>Percentage of completion:</h3>
2020 = 67% ($1,200,000/$1,800,000 x 100)
2021 = 33% ($600,000/$1,800,000 x 100)
Learn more about revenue recognition at brainly.com/question/26275324
