Question

Below is information related to a construction contract for company ABC. The contract price is 9 million. 2019 2020 2021 2022 Costs incurred (accumulated) to date $ 1,500,000 $ 4,000,000 $ 4,750,000 Estimated costs to complete the project 3,400,000 700,000 0 Customer billings (Billings) 4,000,000 3,000,000 2,000,000 Cash Received from Customer 0 4,000,000 3,000,000 2,000,000

TEACHER NOTE: I am repeating the table with summarized numbers in case your device does not allow you to view the entire table above. M = millions k = thousands 2019 2020 2021 2022 Costs incurred (accumulated) to date $ 1.5M $ 4M $ 4.75M Estimated costs to complete the project 3.4M 700k 0 Customer billings (Billings) 4M 3M 2M Cash Received from Customer 0 4M 3M 2M Instructions:

1. Assuming the company uses the Percentage of Completion method, prepare all the necessary inputs for 2020 only. (4.5 points)

2. Assuming the company uses the Percentage of Completion method, prepare the section in the 2020 Balance Sheet that applies. (3 points)

3. How much is the balance of the Construction in Progreso account as of 12/31/2021? (1.5 point)

Answer 1

Part 1

Answer 1
Year	2020	2021	2022
Cost incurred during the year (For year 2 = 4000000-1500000) (For Year 3 = 4750000- 4000000)	$     1,500,000	$       2,500,000	$             750,000
Cumulative cost incurred at end of year	$     1,500,000	$       4,000,000	$         4,750,000
Cumulative cost incurred at end of year	$     1,500,000	$       4,000,000	$         4,750,000
Add: Estimated costs to complete as of year-end	$     3,400,000	$          700,000	$                          0
Total estimated cost	$     4,900,000	$       4,700,000	$         4,750,000
Cumulative cost incurred at end of year	$     1,500,000	$       4,000,000	$         4,750,000
Divided by: Total estimated cost	$     4,900,000	$       4,700,000	$         4,750,000
Percentage of completion	30.6122449%	85.1063830%	100.0000000%
Revenue recognized till the date (9000000 * percentage of completion)	$     2,755,102	$       7,659,574	$         9,000,000
Less: Revenue recognized up to earlier year	$                      0	$       2,755,102	$         7,659,574
Revenue recognized in current year	$     2,755,102	$       4,904,472	$         1,340,426
Revenue recognized in current year	$     2,755,102	$       4,904,472	$         1,340,426
Less: cost incurred during the year	$     1,500,000	$       2,500,000	$             750,000
Gross Profit (Loss)	$     1,255,102	$       2,404,472	$             590,426

Date	General Journal	Debit	Credit
2020	Construction in progress	1,500,000
	Various Accounts (materials/cash etc.)		1,500,000
	(To record cost incurred in Progress.)
2020	Accounts receivable	4,000,000
	Billings on construction contract		4,000,000
	(To record Billings to Customer.)
2020	Cash	4,000,000
	Accounts receivable		4,000,000
	(To record cash collected from customer.)
2020	Construction in progress	1,255,102
	Cost of construction	1,500,000
	Construction Revenue		2,755,102
	(To record recognize Revenue and profit.)

Part 2

Year	2020
Account receivable at beginning	$                      0
Add: Amount billed	$     4,000,000
Less: Cash received	$   (4,000,000)
Account receivable at Ending	$                    -
Billing Amount	$     4,000,000
Cumulative Billing amount	$     4,000,000

Partial balance sheet (2020)
Current liability
Billings ($4,000,000) in excess of cost and profit ($2,755,102) (4000000-2755102)	$     1,244,898

Part 3

Year	2020	2021
Beginning Construction in progress	$                      0	$       2,755,102
Add: Cost incurred	$     1,500,000	$       2,500,000
Add: Gross profit(loss)	$     1,255,102	$       2,404,472
Ending Construction in progress	$     2,755,102	$       7,659,574
Balance of the Construction in Progreso account as of 12/31/2021		$       7,659,574