Homework Answers
| 1 | Percentage of completion=Cost incurred during the year/Total estimated cost | |||||
| Revenue to be recognized=(Contract price*Percenatge of completion)-Revenue already recognized | ||||||
| Gross profit/(loss) to be recognized=(Estimated gross profit/(Loss) *percentage of completion)-Gross profit already recognized | ||||||
| Estimated gross profit/(loss)=Contract price-Total estimated costs | ||||||
| 2021 | 2022 | 2023 | ||||
| a) Contract price | 8500000 | 8500000 | 8500000 | |||
| b) Actual cost to date | 2200000 | 4940000 | 8940000 | |||
| (2200000+2740000) | (4940000+4000000) | |||||
| c) Estimated costs to complete | 4200000 | 3900000 | 0 | |||
| d) Total estimated costs (b)+© | 6400000 | 8840000 | 8940000 | |||
| e) Estimated gross profit/(loss) (a)-(d) | 2100000 | -340000 | -440000 | |||
| f) Percentage of completion (b)/(d) | 34.38% | 55.88% | 100.00% | |||
| g) Revenue to be recognized | 2921875 | 1678125 | 3000000 | |||
| (8500000*34.38%)-0 | Note:1 | (Note:2) | ||||
| h) Gross profit/(loss) to be recognized | 721875 | -1061875 | -100000 | |||
| (2100000*34.38%)-0 | (Note:1) | (Note:2) | ||||
| Note:1 | ||||||
| If estmated gross loss appears,then entire loss has to be recognized in that year itself irrespective of percentage of completion method | ||||||
| Hence,loss to be recognized=721875+340000=$ 1061875 | ||||||
| Revenue to be recognized=Expense to be recognized-loss to be recogized=2740000-1061875=$ 1678125 | ||||||
| Note:2 | ||||||
| Hence,loss to be recognized=-440000+340000=$ -100000 | ||||||
| Revenue to be recognized=Expense to be recognized-loss to be recogized=4000000-100000=3000000 | ||||||
| 2-a. | Journal entries: | |||||
| Date | Account Titles and Explanation | Debit | Credit | |||
| 2021 | Construction in progress | 2200000 | ||||
| Various accounts | 2200000 | |||||
| (Construction cost incurred) | ||||||
| Accounts receivable | 2740000 | |||||
| Billings on construction contract | 2740000 | |||||
| (Billings during the year) | ||||||
| Cash | 2450000 | |||||
| Accounts receivable | 2450000 | |||||
| (Cash collections during the year) | ||||||
| Construction in progress | 721875 | |||||
| Cost of construction | 2200000 | |||||
| Revenue from long-term contracts | 2921875 | |||||
| (Gross profit and revenue recognized) | ||||||
| 2-b. | Date | Account Titles and Explanation | Debit | Credit | ||
| 2022 | Construction in progress | 2740000 | ||||
| Various accounts | 2740000 | |||||
| (Construction cost incurred) | ||||||
| Accounts receivable | 2990000 | |||||
| Billings on construction contract | 2990000 | |||||
| (Billings during the year) | ||||||
| Cash | 2675000 | |||||
| Accounts receivable | 2675000 | |||||
| (Cash collections during the year) | ||||||
| Construction in progress | 1061875 | |||||
| Cost of construction | 2740000 | |||||
| Revenue from long-term contracts | (Balancing figure) | 1678125 | ||||
| (Gross loss and revenue recognized) | ||||||
| 3a. | Balance sheet (Partial) | 2021 | ||||
| Current assets: | ||||||
| Accounts receivavble | ||||||
| Beginning balance | 0 | |||||
| Add: billings | 2740000 | |||||
| Less: cash collections | -2450000 | |||||
| Ending balance (a) | 290000 | |||||
| Construction in progress | 2921875 | |||||
| (2200000+721875) | ||||||
| Less: Billings on construction contract | 2740000 | |||||
| Costs and profits in excess of billings (b) | 181875 | |||||
| Total current assets (a)+(b) | 471875 | |||||
| Current liabilities : | 0 | |||||
| Billings on construction contracts | ||||||
| Less:construction in progress | ||||||
| Billings in excess of cost and losses | ||||||
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Can you explain how you came to your answers. Just the answer
does me no good. Thank you so much!
On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,400,000. During 2018, costs of $2,160,000 were incurred, with estimated costs of $4,160,000 yet to be incurred. Billings of $2,692,000 were sent, and cash collected was $2,410,000. In 2019, costs incurred were $2,692,000 with remaining costs estimated to be...
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