Question

Sarasota, Inc. began work on a $6,339,000 contract in 2020 to construct an office building. During 2020, Sarasota, Inc. incurred costs of $1,537,470, billed its customers for $1,141,000, and collected $961,000. At December 31, 2020, the estimated additional costs to complete the project total $3,121,530.

Prepare Sarasota’s 2020 journal entries using the percentage-of-completion method.

Sarasota, Inc. began work on a $6,339,000 contract in 2020 to construct an office building. During 2020, Sarasota, Inc. incurred costs of $1,537,470, billed its customers for $1,141,000, and collected $961,000. At December 31, 2020, the estimated additional costs to complete the project total $3,121,530. Prepare Sarasota's 2020 journal entries using the percentage-of-completion method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For costs incurred use account Materials, Cash, Payables. If no entry is required, select "No entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit (To record costs incurred.) (To record billings.) (To record collections.)

Answer 1

Solution:

Computation of % of completion, revenue recognition and Gross Profit - Sarasota Inc.
Year	Actual cost incurred (A)	Total cost incurred till date (B)	Total estimated Cost ( C )	% of completion (D) (B/C)	Contract Price (E)	Total Revenue to be recoganized (F) (E * D)	Revenue for current period (G)	Gross Profit (H)
2020	$1,537,470	$1,537,470	$4,659,000	33.00%	$6,339,000	$2,091,870	$2,091,870	$554,400

Journal Entries - Sarasota Inc. - 2020
Event	Particulars	Debit	Credit
1	Construction in Progress Dr	$1,537,470.00
	To Various Accounts		$1,537,470.00
	(To record construction cost incurred)
2	Accounts receivables Dr	$1,141,000.00
	To Billings on construction contract		$1,141,000.00
	(To record progress billings)
3	Cash Dr	$961,000.00
	To Accounts receivables		$961,000.00
	(To record collection from customer)
4	Construction in Progress Dr	$554,400.00
	Cost of construction Dr	$1,537,470.00
	To Revenue from long term contracts		$2,091,870.00
	(To record revenue and gross profit)