Question

Problem: Heren Het Perso nal dam for $.000.000. The poet when t he 5450UMO 51.100,00 Costs incurred during the year Es remaining to complete Percentage of completion Billings during the year Cash collections during the 14000 Assume that Hemvis runnires revenue on this vertime contingu t cimiento Required: 1. Compute the amount of me and restarlusher ed in 2018 and 2019. Please clearly label whether it is a p ork Show our work i s the alto rese Account Title constructiuni evenue of 2018 Debit Credit p letion 3. Prepare the partial haline shot at the end of 2019 sing the percentage method. Write if the account is not used (5 ) Current Assets Account Receivable Construction in Process in excess of Billings Current Liabilities Billings in excess of Construction in Process

Davis Construction company was a low bidder on a construction project to build and earthen dam for $2,000,000. The project was begun in 2017. Cost and other are presented bellow.

2017 2018

Costs incurred during the year $450,000 $1,100,000

Total costs 1,050,000 50,000

Percentage of completion 30%   96.875%

Billings during the year 500,000 1,400,000

Cash collections during the year 400,000 1,400,000

Assume the Beavis recognizes revenue on the contract over time according to percentage of completion

Required

1. Compute the amounts of revenue and gross profit (or loss) to be recognized in 2017 and 2018. Please label whether it is a profit or loss.

Answer 1

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Davis Construction Company
Workings for Ans to 1	Calculation of Gross Profit
Particulars	2018	2019	Note
Contract Price	2,000,000	2,000,000	A
Cost Incurred during the year	450,000	1,100,000	B
Estimated cost to complete	1,050,000	50,000	C
Cost Incurred to date	450,000	1,550,000	D
(Sum total of the cost incurred during the year)
Estimated total cost	1,500,000	1,600,000	E=C+D
Percentage complete	30.00%	96.875%	F=D/E
(Cost Incurred to date/Estimated total cost)
Revenue to be recognized	600,000	1,337,500	G

(Contract Price*Percentage complete)- revenue previously recognized

Year 2018: 30% completed. Revenue recognized = 30% x $ 2,000,000 = $ 600,000.

Year 2019: 96.875% completed. Revenue recognized = 96.88% x $ 2,000,000 – $ 600,000 (previously recognized) = $ 1,337,500.

Ans to 1
Gross Profit	150,000	237,500
Billings during the year	500,000	1,400,000
Collection during the year	400,000	1,400,000

		2018		2019
Ans to 2	Journal Entries	Debit $	Credit $		Debit $	Credit $
Costs Incurred	CIP (Work-in-progress)	450,000			1,100,000
	Cash		450,000			1,100,000
Billing	Accounts Receivable	500,000			1,400,000
	Billing on CIP		500,000			1,400,000
Receiving Payments	Cash	400,000			1,400,000
	Accounts Receivable		400,000			1,400,000
Period end adjustments for Revenue	Construction Expense	450,000			1,100,000
(Gross Profit entry)	CIP (Work-in-progress)	150,000			237,500
	Construction Revenue		600,000			1,337,500

Workings for Balance Sheet
CIP (Work-in-progress)
Account	Amount ($)
Cash	450,000
Construction Revenue	150,000
Balance at the end of 2018	600,000
Cash	1,100,000
Construction Revenue	237,500
Balance at the end of 2019	1,937,500
Accounts Receivable
Account	Amount ($)
Billing on CIP	500,000
Cash	(400,000)
Balance at the end of 2018	100,000
Billing on CIP	1,400,000
Cash	(1,400,000)
Balance at the end of 2019	100,000
Billing on CIP
Account	Amount ($)
Accounts Receivable	500,000
Balance at the end of 2018	500,000
Accounts Receivable	1,400,000
Balance at the end of 2019	1,900,000

Ans to 3
Balance Sheet (Partial)	2018	2019
Current Assets:
CIP (Work-in-progress)	600,000	1,937,500
Accounts Receivable	100,000	100,000
	700,000	2,037,500
Current Liabilities:
Billing on CIP	500,000.00	1,900,000.00
	500,000.00	1,900,000.00