Question

In February 2020, Crane Construction signed a contract and commenced construction on a parking garage. The total contract price was $89.8 million and was expected to be completed in July 2024 at a total estimated cost of $82.0 million. Payment by the customer was to be made in several stages, based on significant events and dates throughout the construction timeline. The customer was to have control over the parking garage and was able to make major changes to the project during the construction process. Crane’s year-end was September 30. By the end of September, 2020, Crane had incurred $20,500,000 in costs and had invoiced $10,600,000 in progress billings. $7,100,000 of the progress billings had been collected. By September 30, 2021, Crane had incurred $39,200,000 in total costs and had invoiced $46,000,000 in progress billings, including the progress billings in 2020. Of the total billings, $30,000,000 in total had been collected. Also, Crane reviewed its cost estimates on the project, and now believed the parking garage would cost $78.4 million in total to complete.

Prepare all journal entries required for the year ended September 30, 2020. Use Materials, Cash, Payables for costs incurred to date.

Answer 1

Journal entries required for the year ended September 30, 2020:

Progress billing done for 10600000 / 89800000 * 100 = 11.804%

Corresponding cost to be expensed out = 11.804% * 82000000 = 9679280

Advance cost incurred (asset account) Debit 10820720

Expense account Debit 9679280

Bank account Credit 20500000

Customer account Debit 10600000

Progress billing account (Sales account)   Credit 10600000

Bank account Debit 7100000

Customer account Credit 7100000