Question

In 2015 The Big Boss Construction Company, started a 3 year project at a fixed contract price of $22,000,000. The estimated construction costs were $15,500,000. The project was completed on time during the 2917 year. The following information is available for the three year period of the construction project. 2015 2016 2017 Costs Incurred to Date $6,188,000 $12,360,000 $15,875,000 Estimated Costs to Complete 9,282,000 3,090,000 -- Billings to Date 6,400,000 18,890,000 22,000,000 Collections to Date 5,100,000 17,110,000 21,630,000 Required 1. Compute the amount of gross profit to be recognized for each of the three years using the percentage of completion. 2. Prepare all necessary journal entries for the 2015, 2016, and 2017 years using the percentage of completion method. 3. Compute gross profit to be recognized for the three years of 2015, 2016, and 2017 using the completed contract method. 4. For each of the three years of 2015, 2016, and 2017: a. Prepare the Income Statement section for Big Boss Construction reporting percentage of completion information. b. Prepare the Balance Sheet section for Big Boss Constriction reporting percentage of completion information.

Answer 1

1. Recognition of Gross Profit under the Percentage of completion method

Particulars	Year 2015(FIG IN $)		Year 2016(FIG IN $)		Year 2017(FIG IN $)
Contract Price		22000000		22000000		22000000
Cost incurred To date	6188000		12360000		15875000
Add:estimated Cost to complete	9282000	15470000	3090000	15450000	-	15875000
Total Estimated Profit		6530,000		65,50,000		61,25,000
Percentage completed Till date		40%		80%		100%
Total Gross Profit Recognized		26,12,000		52,40,000		61,25,000

2.

Journal entries under percentage of completion method

Particulars		Debit($)	Credit( $)	Debit($)	Credit($)	Debit($)	Credit($)
Cost incurred to Date	Construction in Progress(CIP)	6188000		12360000		15875000
	Accounts payable		6188000		12360000		15875000
Billing to date	Accounts Receivable	6400000		18890000		22000000
	Billing on CIP		6400000		18890000		22000000
Receiving Payament	Cash	5100000		17110000		21630000
	Accounts Receivable		5100000		17110000		21630000
Recording Revenue	Billing on CIP	6400000		18890000		22000000
	Construction revenue a/c		6400000		18890000		22000000
Recording Expenses	Cost of construction	6188000		12360000		15875000
	Construction in progress(CIP)		6188000		12360000		15875000

3.Recognition of Gross Profit under the completion contract method

Particulars	Year 2015(fig in$)		Year 2016(fig in $)		Year 2017(fig in $)
Contract Price		22000000		22000000		22000000
Cost incurred To date	6188000		12360000		15875000
Add:estimated Cost to complete	9282000	15470000	3090000	15450000	-	15875000
Total Estimated Profit		6530,000		65,50,000		61,25,000
Percentage completed Till date		40%		80%		100%
Total Gross Profit Recognized		Not applicable		Not applicable		61,25,000

4. a) INCOME STATEMENT SECTION

Particulars	Year 2015(fig in$)	Year 2016(fig in$)	Year 2017(fig in$)
Sales	8800000	17600000	22000000
Less : Cost of goods sold	6188000	12360000	15875000
Gross profit	2612000	5240,000	61,25,000

b. BALANCE SHEET":

Current liabilities

CIP

lESS: bILLINGS ON

construction