Question

The Young Company enters into a long-term project to build a new office building. The Contract price is $9,000,000 and Young expects to complete the project in three years. Young gives you the following information for the first two years regarding the project:

	2017	2018
Actual costs incurred during year	2,400,000	3,800,000
Estimated costs to complete at as of December 31:	5,100,000	3,000,000
Amounts billed to customer	2,800,000	4,100,000
Collections from customer	2,600,000	3,400,000

Required:

1.    Prepare the journal entries to record the above information for both 2017 and 2018 under the percentage of-completion method.

2.    What items would be disclosed on the Company’s December 31, 2018 balance sheet?

12	1		Debit	Credit
	2017
	2018
	2
	2018

Answer 1

		2017	2018
	Total Cost	$7,500,000	$9,200,000
	Cost incurred	$2,400,000	$6,200,000
	% complete	32%	67%
	Total Estimated Revenue	$9,000,000	$9,000,000
	Total Revenue Recognised to date	$2,880,000	$6,000,000
	Revenue to be recognised in current year	$2,880,000	$3,120,000
	Income/(Loss) to date	$480,000	($200,000)
	Income/(Loss) recognised current year	$480,000	($680,000)
2017	Account Heading		Debit	Credit
	Construction in Progress		$2,400,000
	Accounts Payable			$2,400,000
	Accounts receivable		$2,800,000
	Billings on construction contract			$2,800,000
	Cash		$2,600,000
	Accounts receivable			$2,600,000
	Construction in Progress		$480,000
	Construction expense		$2,400,000
	Construction revenue			$2,880,000
2018
	Construction in Progress		$3,800,000
	Accounts Payable			$3,800,000
	Accounts receivable		$4,100,000
	Billings on construction contract			$4,100,000
	Cash		$3,400,000
	Accounts receivable			$3,400,000
	Construction in Progress			$680,000
	Construction expense		$3,800,000
	Construction revenue			$3,120,000