Question

Teal, Inc. began work on a $6,550,000 contract in 2020 to construct an office building. During 2020, Teal, Inc. incurred costs of $1,817,440, billed its customers for $1,316,000, and collected $1,039,000. At December 31, 2020, the estimated additional costs to complete the project total $3,094,560.

Prepare Teal’s 2020 journal entries using the percentage-of-completion method.

Answer 1

Answer

• Requirement asked

Date	Accounts title	Debit	Credit
2020	Construction in Progress	$1,817,440
	Various accounts		$1,817,440
	(construction cost incurred)
2020	Accounts receivables	$1,316,000
	Billing on Construction contracts		$1,316,000
	(amount billed during the year)
2020	Cash	$1,039,000
	Accounts receivables		$1,039,000
	(cash received)
2020	Construction in Progress	$606,060
	Cost of construction	$1,817,440
	Revenue from Long Term contract		$2,423,500
	(revenue recognised)

--Working

Working		2020
A	Contract Price	$6,550,000
B	Cost Incurred to Date	$1,817,440
C	Estimated cost yet to be incurred to complete the contract	$3,094,560
D = B+C	Total Cost	$4,912,000
E = (B/D) x 100	% of Completion	37.00%
F = A x E	Revenue to date	$2,423,500
G	Revenue of Previous year	$0
H = F - G	Net Revenue this year	$2,423,500
I (=B)	Cost to date	$1,817,440
J	Cost to date of previous year	$0
K = I - J	Net Cost for the year	$1,817,440
L = H - K	Gross Profits	$606,060