Question

During 2020, Riverbed Company started a construction job with a contract price of $1,600,000. The job was completed in 2022. The following information is available. 2022 2020 2021 Costs incurred to date $404,000 $830,680 $1,069,000 Estimated costs to complete -0 606,000 262,320 Billings to date 300,000 906,000 1,600,000 Collections to date 272,000 810,000 1,416,000 Compute the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used. Gross profit recognized in 2020 Gross profit recognized in 2021 $ Gross profit recognized in 2022

Answer 1

a)

	2020	2021	2022
cost incurred till date	404000	830680	1069000
Estimated costs to complete	606000	262320	0
Total cost to complete	1010000	1093000	1069000
% of completion till date [cost incurred till date /total cost complete]	404000/1010000 .40 or 40%	830680/1093000 .76 or 76%	1069000/1069000 100%
Gross profit on contract [contract revenue - Total cost to complete]	1600000-1010000 590000	1600000-1093000 507000	1600000-1069000 531000

	2020	2021	2022
Gross profit to be recognized till date (Gross profit *% of completion)	590000*40%=236000	507000*76%=385320	531000
less:Gross profit recognized in earlier years	0	-236000	-385320
Gross profit recognized in current year	236000	149320	145680

b)

Date	Account title	Debit	credit
2021
1	construction in progress	426680
	cash /Accounts payable		426680
2	Accounts receivable	606000
	Billing on construction in progress		606000
3	cash	538000
	Accounts receivable		538000
4	construction expense	426680
	construction in progress	149320
	construction revenue		576000

working :

1)Construction cost during 2021 = (830680 cost incurred till date -404000 cost in prior year ) = 426680

2)Billing during the year = 906000-300000 = 606000

3)collection during the year = 810000-272000=538000