Answer:
Explanation:
a. Gross profit in 2014:
Contract price = $1,600,000
Costs = $400,000 + $600,000 = $1,000,000
400,000/1,000,000= 40%
$1,600,000 - $1,000,000 = $600,000
$600,000*40% = $240,000
Gross profit in 2015:
Contract price = $1,600,000
Costs = $825,000 + $275,000 = $1,100,000
825,000/1,100,000= 75%
$1,600,000 - $1,100,000 = $500,000
$500,000*75% = $375,000
Gross profit = 375,000 - 240,000 = $135,000
Gross profit in 2016:
Contract price = $1,600,000
Costs = $1070,000
$1,600,000 - $1,070,000 = $530,000
Gross profit = 530,000 - 240,000 - 135,000 = $155,000
b.
Journal entries:
Dr Construction in process 425,000
Cr Materials, Cash, Payables, etc 425,000
*($825,000 -400,000)
Dr Accounts Receivable 600,000**
Cr Billing on construction in process 600,000
**($ 900,000-300,000)
Dr Construction expenses 425,000
Dr Construction in Process 135,000
Cr Revenue from Long-Term Contracts 560,000***
***(1,600,000 x (75% - 40%))
c.
2014 $0
2015 $0
2016 $530,000
Gross Profit Recognized in 2016:
Gross profit $1,600,000-1070,000 = $530,000