Question

Arizona Desert Homes (ADH) constructed a new subdivision during 2020 and 2021 under contract with Cactus Development Co. Relevant data are summarized below: Contract amount $ 3,000,000 Cost: 2020 1,200,000 2021 600,000 Gross profit: 2020 800,000 2021 400,000 Contract billings: 2020 1,500,000 2021 1,500,000 ADH recognizes revenue over time with respect to these contracts. For 2021, what is the journal entry to record revenue? Multiple Choice Accounts receivable 1,500,000 Revenue from long-term contracts 1,500,000 Construction in progress 400,000 Cost of construction 600,000 Revenue from long-term contracts 1,000,000 Cost of construction 2,000,000 Gross profit 1,000,000 Revenue from long-term contracts 3,000,000 Accounts receivable 1,500,000 Cost of construction 600,000 Gross profit 600,000 Deferred revenue 300,000

Answer 1

Answer:

construction in progress 400,000

cost of construction 600,000

revenue from long-term contracts 1,000,000

Explanation:

To derive revenue for this year :we say Total revenue $3,000,000- Revenue previously recognized $2,000,000 =

Revenue to recognize this year $1,000,000.

Cost recognized for the year= $600,000(as opposed to $12000000 in costs last year)

Gross profit recognized for this year = $1,000,000 - $600,000 = $400,000