Question

Answer all three of the following problems: Wind and Water Energy Company hired Smith Construction Corporation to build a new building for its operations. Smith agreed to build the plant for $1,200,000, and Wind and Water Energy agreed to pay Smith $300,000 on January 1 and July 1 for two years, begin ning July 1, 2006. Smith estimates that it will incur total costs of $950,000 to complete con struction. The following details exist at December 31, 2006 Costs incurred to date $400,000 Estimated costs to complete 550,000 Billings to date 300,000 Collections to date 300,000 Required: 1. Calculate the amount of income that Smith should recognize for 2006, using the per centage-of-completion method. Sad Construction Company uses the percentage-of-completion method when total con- struction costs can be estimated. Sad is building an office building for Porter Company for $10,000,000 with the following details: 12/31/2004 12/31/2005 12/31/2006 Costs incurred to date $2,000,000 $3,500,000 $6,500,000 Estimated costs to complete 6,000,000 4,500,000 1,500,000 Billings to date 6,000,000 8,000,000 10,000,000 Collections to date 3,000,000 5,500,000 10,000,000 Required: 1. Prepare all journal entries for 2004 that Sad should make for this job. 2. Prepare all journal entries for 2005 that Sad should make for this job.

Answer 1

1)

Costs incurred to date	400000
Estimated additional costs to complete	550000
Estimated total costs ($400000 + $550000)	950000
Percentage of completion ($400000/$950000)	42%
Revenue recognized during the year (42% x $1200000)	504000
Less: Costs incurred during the year	400000
Gross profit for the year	104000

Note: The percentage of completion has been rounded off to the nearest whole number in the absence of specific instructions regarding the same. Kindly round off as required. Answers may vary slightly due to different rounding off.

Per HOMEWORKLIB RULES the first question has been answered. Please post each of the remaining independent questions separately. Thank you.