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Arrow Construction Company | ||||
Ans to 1 | Calculation of Gross Profit | |||
Particulars | 2021 | 2022 | 2023 | |
Contract Price | 8,210,000 | 8,210,000 | 8,210,000 | A |
Cost Incurred during the year | 2,070,000 | 2,570,000 | 3,870,000 | B |
Estimated cost to complete | 4,070,000 | 3,705,000 | - | C |
Cost Incurred to date | 2,070,000 | 4,640,000 | 8,510,000 | D |
(Sum total of the cost incurred during the year) | ||||
Estimated total cost | 6,140,000 | 8,345,000 | 8,510,000 | E=C+D |
Percentage complete | 33.71% | 55.60% | 100.00% | F=D/E |
(Cost Incurred to date/Estimated total cost) | ||||
Revenue to be recognized | 2,767,866 | 1,797,071 | 3,645,063 | G |
(Contract Price*Percentage complete)- revenue previously recognized | ||||
Year 2021: 33.71% completed. Revenue recognized = 33.71% x $ 8,210,000 = $ 2,767,866. | ||||
Year 2022: 55.60% completed. Revenue recognized = 55.60% x $ 8,210,000 – $ 2,767,866 (previously recognized) = $ 1,797,071. | ||||
Year 2023: 100% completed. Revenue recognized = 100% x $ 8,210,000 – $ 2,767,866- $ 1,797,071 (previously recognized) = $ 3,645,063. | ||||
Gross Profit/(Loss) | 697,866 | (772,929) | (224,937) | H=G-B |
Billings during the year | 2,570,000.00 | 2,820,000.00 | ||
Collection during the year | 2,320,000.00 | 2,545,000.00 |
2021 | 2022 | |||||
Ans to 2a and 2b | Journal Entries | Debit $ | Credit $ | Debit $ | Credit $ | |
Costs Incurred | CIP (Work-in-progress) | 2,070,000 | 2,570,000 | |||
Cash | 2,070,000 | 2,570,000 | ||||
Billing | Accounts Receivable | 2,570,000 | 2,820,000 | |||
Billing on CIP | 2,570,000 | 2,820,000 | ||||
Receiving Payments | Cash | 2,320,000 | 2,545,000 | |||
Accounts Receivable | 2,320,000 | 2,545,000 | ||||
Period end adjustments for Revenue | Construction Expense | 2,070,000 | ||||
(Gross Profit entry) | CIP (Work-in-progress) | 697,866 | ||||
Construction Revenue | 2,767,866 | |||||
Period end adjustments for Revenue | Construction Expense | 2,570,000 | ||||
(Gross Loss entry) | CIP (Work-in-progress) | 772,929 | ||||
Construction Revenue | 1,797,071 |
Workings for Balance Sheet | |
CIP (Work-in-progress) | |
Account | Amount ($) |
Cash | 2,070,000 |
Construction Revenue | 697,866 |
Balance at the end of 2021 | 2,767,866 |
Cash | 2,570,000 |
Construction Revenue | (772,929) |
Balance at the end of 2022 | 4,564,937 |
Accounts Receivable | |
Account | Amount ($) |
Billing on CIP | 2,570,000 |
Cash | (2,320,000) |
Balance at the end of 2021 | 250,000 |
Billing on CIP | 2,820,000 |
Cash | (2,545,000) |
Balance at the end of 2022 | 525,000 |
Billing on CIP | |
Account | Amount ($) |
Accounts Receivable | 2,570,000 |
Balance at the end of 2021 | 2,570,000 |
Accounts Receivable | 2,820,000 |
Balance at the end of 2022 | 5,390,000 |
Ans to 3a and 3b | ||
Balance Sheet (Partial) | 2021 | 2022 |
Current Assets: | ||
CIP (Work-in-progress) | 2,767,866 | 4,564,937 |
Accounts Receivable | 250,000 | 525,000 |
3,017,866 | 5,089,937 | |
Current Liabilities: | ||
Billing on CIP | 2,570,000.00 | 5,390,000.00 |
2,570,000.00 | 5,390,000.00 |
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