Question

Arizona Desert Homes (ADH) constructed a new subdivision during 2017 and 2018 under contract with Cactus Development Co. Relevant data are summarized below: Contract amount $ 2,550,000 Cost: 2017 1,100,000 2018 500,000 Gross profit: 2017 650,000 2018 300,000 Contract billings: 2017 1,275,000 2018 1,275,000 ADH recognizes revenue upon completion of the contract. What is the journal entry in 2018 to record revenue?

Answer 1

Answer:

The Journal entry is as follows:

Construction in progress A/c   Dr. $950,000

Cost of construction A/c           Dr. $1,600,000

To revenue from long term contracts                       $2,550,000

(To record the revenue in 2018)

Workings:

Cost of construction:

= cost of 2017 + cost of 2018

= $1,100,000 + $500,000

= $1,600,000