Question

During 2020, Concord Company started a construction job with a contract price of $1,580,000. The job was completed in 2022. The following information is available.
2020 2021 2022
Costs incurred to date $430,000 $766,500 $1,067,000
Estimated costs to complete 570,000 328,500 –0–
Billings to date 297,000 900,000 1,580,000
Collections to date 272,000 817,000 1,411,000
1. Compute the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used.
Gross profit recognized in 2017 225,700
Gross profit recognized in 2018 175,140
Gross profit recognized in 2019 149,160
2. Prepare all necessary journal entries for 2018.

Answer 1

Answer:

1. 2020 $249,400

2021 $90,100

2022 $422,900

2. Dr Construction in process$336,500

Materials,cash, payables etc $336,500

Dr Accounts receivable $603,000

Cr Billings on construction in process $603,000

Dr Cash $545,000

Cr Accounts receivable $547,000

Dr Construction in process ($336,500

Dr Construction expenses $90,100

Cr Revenue from long term contracts $426,600

Explanation:

1. Computation for the amount of gross profit to be recognised each year, using percentage of completion method.

2020 2021 2022

Contract price $1,580,000 $1,580,000 $1,580,000

Less: Estimated cost to date ($430,000) ($766,500) ($1,067,000)

Estimated cost to complete (570,000) (328,500) 0

Estimated total costs ($1,000,000) ($1,095,000) ($1,067,000)

Estimated gross profit $580,000 $485,000 $513,000

($1,580,000-$1,000,000=$580,000)

($1,580,000-$1,095,000=$485,000)

($1,580,000-$1,067,000=$513,000)

Percentage completed 43% 70% 100%

($430,000/1,000,000=43%)

($766,500/$1,095,000=70%)

($1,067,000/$1,067,000=100%)

Revenue recognised in prior year - $249,400 $90,100

(43%*$580,000=$249,400)

($339,500-$249,400=$90,100)

Total revenue recognised $249,400 $339,500 $513,000

(70%*$485,000=$339,500)

Gross profit recognised $249,400 $90,100 $422,900

($513,000-$99,100=$422,900)

Therefore Gross profit recognized are :

Gross profit recognized in 2020 $249,400

Gross profit recognized in 2021 $90,100

Gross profit recognized in 2022 $422,900

2. Preparation of all necessary journal entries for 2020,2021,2022

Dr Construction in process($766,500-430,000) $336,500

Materials,cash, payables etc $336,500

(To record cost of construction)

Dr Accounts receivable(900,000-297,000) $603,000

Cr Billings on construction in process $603,000

(To record process Billings)

Dr Cash(817,000-272,000) $545,000

Cr Accounts receivable $547,000

(To record collections)

Dr Construction in process ($766,500-430,000) $336,500

Dr Construction expenses $90,100

Cr Revenue from long term contracts $426,600

($336,500+$90,100)

(To recognise revenue and gross profit)