Question

During 2020, Sunland Company started a construction job with a contract price of $1,408,000. The job was completed in 2022. The following information is available. The contract is non-cancellable.

		2020		2021		2022
Costs incurred to date		$352,000		$726,000		$941,600
Estimated costs to complete		528,000		242,000		0
Billings to date (non-refundable)		264,000		792,000		1,408,000
Collections to date		237,600		712,800		1,254,000

QUESTION:

A) Calculate the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used.

B) Prepare all necessary journal entries for 2021. (Use Materials, Cash, Payables for costs incurred to date.)

Answer 1

Solution A:

Computation of % of completion, revenue recognition and Gross Profit - Sunland company
Year	Actual cost incurred (A)	Total cost incurred till date (B)	Total estimated Cost ( C )	% of completion (D) (B/C)	Contract Price (E)	Total Revenue to be recoganized (F) (E * D)	Revenue for current period (G)	Gross Profit (H) (G - A)
2020	$352,000	$352,000	$880,000	40.00%	$1,408,000	$563,200	$563,200	$211,200
2021	$374,000	$726,000	$968,000	75.00%	$1,408,000	$1,056,000	$492,800	$118,800
2022	$215,600	$941,600	$941,600	100.00%	$1,408,000	$1,408,000	$352,000	$136,400

Solution B:

Journal Entries - Sunland Company - 2021
Event	Particulars	Debit	Credit
1	Construction in Progress Dr	$374,000.00
	To Matreial, cash, payables		$374,000.00
	(To record construction cost incurred)
2	Accounts receivables Dr	$528,000.00
	To Billings on construction contract		$528,000.00
	(To record progress billings)
3	Cash Dr	$475,200.00
	To Accounts receivables		$475,200.00
	(To record collection from customer)
4	Construction in Progress Dr	$118,800.00
	Cost of construction Dr	$374,000.00
	To Revenue from long term contracts		$492,800.00
	(To record revenue and gross profit)