Question

During 2017, Pearl Company started a construction job with a contract price of $1,610,000. The job was completed in 2019. The following information is available.

		2017		2018		2019
Costs incurred to date		$434,300		$859,560		$1,073,000
Estimated costs to complete		575,700		242,440		–0–
Billings to date		301,000		897,000		1,610,000
Collections to date		271,000		817,000		1,428,000

A) Compute the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used.

Gross profit recognized in 2017 $ 258,000

Gross profit recognized in 2018 $ 138,240

Gross profit recognized in 2019 $ 140,760

B) Prepare all necessary journal entries for 2018.

Prepare all necessary journal entries for 2018. (Credit account titles are automatically indented whe incurred use account Materials, Cash, Payables.) Account Titles and Explanation Debit Credit Construction in Process 425600 Materials, Cash, Payables 425600 (To record cost of of construction.) Taccounts Receivable i 897000) | Billings on Construction in Process 897000 (To record progress billings.) Tcash 7 5460007 546000 546000 Accounts Receivable (To record collections.) Construction Expenses 425600 Construction in Process * Revenue from Long-Term Contracts 563840 (To recognize revenue.)

C) Compute the amount of gross profit to be recognized each year, assuming the completed-contract method is used.

Answer 1

a) Gross profit recognized (Percentage-of-completion method) : 2017 2018 2019 $1,610,000 $1,610,000 $1,610,000 Contract price (a) Less: Estimated Cost Costs incurred to date Estimated costs to complete Estimated Total costs (b) Estimated Gross Profit (a) - (b) $434 300 $859.560 $1,073.000 $575,700 $242,440 $0 $1,010,000 $1,102,000 $1,073,000 $600,000 $508,000 $537,000 Percentage (%) of completion 43.00% 78.00% 100.00% (Cost incurred to date / Estimated total cost) Gross profit earned $258,000 $396,240 $537,000 Less: Gross profit earned previous year $0 $258,000 $396.240 Gross profit recognized S258,000 $138,240 $140,760 Credit b) Journal Entries: Account Titles and Explanation 1) Construction in Process ($859,560 - $434,300) Materials, Cash Payables, etc. (To record cost of construction) Debit $425,260 $425,260 $596,000 2) Accounts Receivable ($897,000 - $301,000) Billings on Construction (To record billing to date) $596,000 $546,000 3) Cash ($817,000 - $271,000) Accounts receivable (To record collection) $546,000 $425,260 $138,240 4) Construction Expense Construction in Process Revenue from Long-Term Contract (To recognize revenue) $563,500 C) Gross profit recognized (Completed contract method) : 2017 2018 2019 Gross Profit Recognized SO SO $537,000 ($1,610,000 - $1,073,000)