Question

18.A construction company was hired on a construction project to build a building for $1,800,000. The project was begun in 2015 and completed in 2016. Cost and other data are presented below:

	2015	2016
Costs incurred during the year	$450,000	$1,100,000
Estimated costs to complete	1,050,000	0
Billing during the year	400,000	1,400,000
Cash collections during the year	300,000	1,500,000

Assume that A recognizes revenue on this contract over time according to percentage of completion.

Required:

Prepare all journal entries to record costs, billings, collections, and profit recognition.

Answer 1

Journal entries
	2015		2016
	Debit	Credit	Debit	Credit
Construction in progress	$              450,000		$           1,100,000
Various accounts		$              450,000		$        1,100,000
Accounts receivable	$              400,000		$           1,400,000
Billings on construction contract		$              400,000		$        1,400,000
Cash	$              300,000		$           1,500,000
Accounts receivable		$              300,000		$        1,500,000
Construction In progress	$                 90,000		$              160,000
Cost of construction	$              450,000		$           1,100,000
Revenue from long term contracts		$              540,000		$        1,260,000

	2014	2015
Contract price	$           1,800,000	$           1,800,000
Actual costs to date	$              450,000	$           1,550,000
Estimated costs	$           1,050,000	$                          -
total estimated costs	$           1,500,000	$           1,550,000
Estimated gross profit (loss)	$              300,000	$              250,000
revenue recognition
2014:(450000/1500000)=	30%
30%*1800000=	$              540,000
2015=	100%
1800000-540000	$           1,260,000