Question

On July 1, 2014, Stuffing Inc. entered into a contract to build the longest ever Thanksgiving table. It is estimated that the table will cost $6,000,000 and will take 3 years to complete. The contract price was $7,800,000. The following information pertains to the construction period.

2014                            2015                           2016

Costs to date                                       $2,000,000                  $4,060,000                  $6,200,000

Estimated costs to complete               $4,000,000                 $1,740,000                  –0–        

Progress billings to date                     $1,200,000                 $4,800,000                  $7,800,000    

Cash collected to date                         $900,000                     $4,200,000                  $7,680,000

(a) Compute the amount of gross profit to be recognized each year, assuming the percentage-of completion method is used.

(b) Prepare all necessary journal entries for 2016.

(c) Prepare a partial balance sheet for December 31, 2015, showing the balances in the receivables and inventory accounts.

Answer 1

1) calculation of gross profit
particulars			2014	2015	2016
cost incurred			2000000	2060000	2140000
cost incurred to date (1)			2000000	4060000	6200000
estimated cost (2)			4000000	1740000
total estimated cost (1)+(2)			6000000	5800000	6200000
percentage of completion			33%	70%	100%
cost to date/total estimated cost
income (1)			2574000	2886000	2340000
			7800000*33%	7800000*70%-2574000	7800000*100%-2574000-2886000
cost incurred (2)			2000000	2060000	2140000
gross profit (1)-(2)			574000	826000	200000
2) Journal entries			Debit	credit
accounts receviable			3000000
bill on construction in progress				3000000
construction exp			2140000
construction in prosess			200000
long term contract revenue				2340000
cash			3480000
accounts receivable				3480000
partial balancehseet
accountd re rece			600000
construction in process			1400000