Question

Coquel Company has a non-cancellable contract to construct a bridge for an estimated cost of$ 1,950,000. The contract is to start in July 2020, and the bridge is to be completed in September 2022. The following data pertain to the construction period. Assume that progress billings are 4. non-refundable. 2020 2021 2022 Costs to date $360,000 $900,000 $390,000 Estimated costs to complete 1,260,000 380,000 Progress billings during the 305,000 765,000 1,200,000 year Cash collected during the year 280,000 760,000 2,000,000 Instructions Assuming that Coquel Company uses the zero-profit method prepare the appropriate journal entries to recognize revenue over the life of the contract. Assuming that Coquel Company uses the percentage-of-completion method prepare the appropriate journal entries to recognize revenue over the life of the contract. 1. 2.

Answer 1

2021 $900,000 $900,000 2022 $390,000 $390,000 $765,000 $765,000 $880.000 $880,000 Zero-profit method Journal entries: Date Accounts title and explanation 2020 Construction in progress $360,000 Various accounts $360,000 (To record cost incurred during the year) Accounts Receivable $305,000 Billing on construction contract $305,000 (To record billing during the year) Cash $280,000 Accounts Receivable $280,000 (To record cash collection) Cost of construction No entry Construction in progress Construction Revenue (To record gross profit or loss) Billing on construction contract Construction in progress (To close these accounts) $760,000 $760,000 $910,000 $910.000 No entry $1,650.000 $300,000 $1,950,000 $1.950.000 No entry No ency S1.950.000 2020 2021 Particulars Calculate Gross profit or loss 2022 $300,000 0

Billings during the year 2022 $880,000 2020 $305,000 2020 $360,000 $360,000 $1,260,000 $1,620,000 Costs incurred during the year Cumulative Costs to date Add: Estimated costs to complete as of year-end Estimated total costs 2021 $765,000 2021 $900,000 $1,260,000 $380,000 $1,640,000 2022 $390,000 $1,650,000 [2021=$360000+$900000; 2022=$1260000+$390000] $1,650,000 Therefore, % of completion 22.22% 76.83% 100.00% [For 2020: $360000 / $1620000 = 22.22%; For 2021: $1260000 / $1640000 = 76.83%; For 2022: $1650000 / $1650000 = 100%] Contract price of this project Less: Cumulative cost to date till 2022 This contract's estimated gross profit $1,950,000 ($2,020,000+ $4,294,000 + $3,686,000] $1,650,000 (As calculated above) $300,000 --> Spread over 3 years of contract as below Contract value completed Less: Revenue recognized already till last year Revenue to recognize (based on % of completion) Less: Cost incurred during the year Gross Profit (Loss) to be recognized 2020 $433,333 $0 $433,333 -$360,000 $73,333 2021 2022 $1,498,171 $1,950,000 ($1950000 x 22.22%; $1950000 x 76.83%; $1950000 x 100%] $433,333 $1,498,171 [Ref: Above line] $1,064,837 $451,829 $900,000 $390,000 (Given] $164,837 $61,829

2022 $390,000 $390,000 $880,000 $880,000 Percentage-of-completion method Journal entries: Date Accounts title and explanation 2020 2021 Construction in progress $360,000 $900,000 Various accounts $360,000 $900,000 (To record cost incurred during the year) Accounts Receivable $305,000 $765,000 Billing on construction contract $305,000 $765,000 (To record billing during the year) Cash $280.000 $760,000 Accounts Receivable $280,000 $760,000 To record cash collection) Cost of construction $360,000 $900.000 Construction in progress $73,333 $164.837 Construction Revenue $433,333 $1.064.837 (To record gross profit or loss) Billing on construction contract No entry No entry Construction in progress (To close these accounts) $910,000 $910.000 $390.000 $61.829 $451.829 $1,950,000 $1,950,000