Question

Sonia Inc. entered into a contract with Lala Inc. on July 1, 2018 to construct an office building. The total contract price for construction of the building is $400,000. The building was completed on December 31, 2020. Sonia’s fiscal year end is December 31.

Below is related information of Sonia Inc. regarding this construction:

	2018	2019	2020
Actual cost incurred during the year	$35,000	$215,000	$175,000
Estimated costs to complete	315,000	170,000	0
Billings to Lala Inc. to date	72,000	217,000	400,000

Please answer each of the following questions and clearly label which question you are answering. You can prepare it in Word, in Excel, or handwrite it. Once completed, upload the completed Word or Excel document or a picture of the handwritten work (22 points).

Please use the percentage-of-completion method for items 1-5.

1. Prepare journal entries for the actual construction costs incurred and billings made in 2018. (4 points)

1. Calculate the amount of revenue and gross profit or loss to be recognized in 2018. Please show supporting calculations. (5 points)

1. Prepare the adjusting journal entry for 2018 to record revenue recognition and gross profit/loss. (3 points)

1. Prepare a partial balance sheet for 2018 relating to the contract. You do NOT need to include Cash and Accounts Receivable in your answer. Be sure to indicate whether an item is an asset or liability. Please show supporting calculations. (3 points)

1. Calculate the amount of revenue and gross profit or loss to be recognized in 2019. Please show supporting calculations. If needed, round the percentage calculation to the fourth decimal (e.g. 22.36%) and round the dollar amount to the whole dollar. (5 points)

Please use the completed contract method for item 6.

1. Using the completed contract method, how much revenue would be recognized in 2018? (2 points)

Answer 1