Question

Crane Construction Inc., which has a calendar year end, has entered into a non-cancellable fixed price contract for $2.9 million beginning September 1, 2020, to build a road for a municipality. It has been estimated that the road construction will be complete by June 2022. The following data pertain to the construction period.

		2020		2021		2022
Costs to date		$848,000		$1,871,250		$2,428,000
Estimated costs to complete		1,802,000		623,750		0
Progress billings to date (non-refundable)		890,000		2,378,000		2,900,000
Cash collected to date		748,000		2,271,000		2,900,000

Using the percentage-of-completion method, calculate the estimated gross profit that would be recognized during each year of the construction period.

CRANE CONSTRUCTION INC.
STATEMENT OF GROSS PROFIT
	2020	2021	2022
Gross profit	$80,000	$223,750	$168,250

Using the percentage-of-completion method, prepare the journal entries for 2020 and 2021. (Use Materials, Cash, Payables for costs incurred to date.)

For the Year 2020:

(To record cost of Construction)
(To record Progress billings)
(To record collections)
(To record revenues)
(To record construction expenses)

Same table for year 2021:

Answer 1

* 100 * 100 2020 Percentage of completion = Cost to date * 100 Estmated total cost $848,000 $848,000+$1,802,000 = 32% Revenue to be recognised = $2,900,000 * 32% = $928,000 2021 Cumulative Percentage of completion = Cost to date * 100 Estmated total cost $1,871,250 $1,871,250+$623,750 75% Revenue to be recognised = $2,900,000 * (75-32)% = $1,247,000 Cost incurred = Cost to date - previous year cost = $1,871,250-$848,000 = $1,023,250 2022 Cumulative Percentage of completion = 100% since project completed. Revenue to be recognised = Total contract price - Revenue recognised till dsate = $2,900,000-$928,000 - $1,247,000 = $725,000 Cost incurred = Cost to date - previous year cost = $2,428,000-$1,871,250 = $556,750 CRANE CONSTRUCTION INC. STATEMENT OF GROSS PROFIT 2020 2021 2022 Total Revenue $928,000 $1,247,000 $725,000 $2,900,000 Costs ($848,000) ($1,023,250) ($556,750) ($2,428,000) Gross profit $80,000 $223,750 $168,250 $472,000