Question

5. During Year 1, Gates Corp. started a construction job with a total contract price of $4,000,000. The job was completed on December 15, Year 2. Additional data are as follows: Year 1 Year 2 Actual costs incurred during the year $990,000 $1,200,000 Estimated remaining costs 1,210,000 Billed to customer 1,600,000 2,400,000 Received from customer 1,200,000 2,400,000 A. Prepare the journal entries necessary for Year 1 using the percentage of completion method. B. What amount of gross profit will be recognized in Year 1 using the completed-contract method?

Answer 1

Answer 1

1. To record the cost incurred:

Work-in-progress	$990,000
Accounts payable and others		$990,000

2. To record the amount billed:

Accounts receivable	$1600,000
Billings		$1600,000

3. To record the collections:

Cash	$1200,000
Account receivable		$1200,000

Answer 2

Gross profit for 1^st year= Billed to customer- Actual cost incurred

                                             =$1600000-$990000

                                          = $610,000