Question

Exercise 18-36 Coronado Construction Company uses the percentage-of-completion method of accounting. In 2017, Coronado began work under contract #E2-D2, which provided for a contract price of $2,234,000. Other details follow: 2017 2018 Costs incurred during the year $615,980 $1,420,000 Estimated costs to complete, as of December 31 1,005,020 -0- Billings to date 413,000 2,234,000 Collections during the year 351,000 1,530,000 What portion of the total contract price would be recognized as revenue in 2017? In 2018? Revenue recognized in 2017 Revenue recognized in 2018 SHOW LIST OF ACCOUNTS LINK TO TEXT Assuming the same facts as those above except that Coronado uses the completed-contract method of accounting, what portion of the total contract price would be recognized as revenue in 2018? Revenue recognized in 2018

Answer 1

Compute revenue recognized in 2017 as follows: Revenue recognized = Contract price x % of completion = $2,234.000 x 38% = $848,920 Working note: Compute total estimated cost as follows: Total estimated cost = Cost incurred + Estimated cost to complete = $615,980 + $1,005,020 = $1,621,000 Compute % of completion as follows: -X100 Cost incurred % of completion = Total estimated cost $615,980 2x100 $1,621,000 = 38% Compute revenue recognized in 2018 as follows: Revenue recognized in 2018 = Contract price - Revenue recognized in 2017 = $2,234,000 - $848,920 = $1,385,080

Compute revenue recognized in 2018 using completed contract method as follows: Under completed-contract method of accounting, all the revenues and gains are recognized when the project is completed. Thus, the total contract price will be recognized in 2018 i.e., $2.234,000 as project is completed in 2018. Under this method, no profit will be recognized in 2017. Prepare the journal entries as follows: Credit Debit $615,980 Accounts name and explanation Construction in process Cash (To record cost of construction.) $915,980 $413,000 Accounts receivable billing on construction in progress (To record progress billings) $413,000 Cash $351,000 $351,000 Accounts receivable (To record collections) $615,980 $232,940 Construction expense construction in progress contract revenue (to recognize revenue) $848,920