Question

In: Accounting

In 2015 The Big Boss Construction Company, started a 3 year project at a fixed contract...

In 2015 The Big Boss Construction Company, started a 3 year
project at a fixed contract price of $22,000,000. The estimated
construction costs were $15,500,000. The project was completed
on time during the 2917 year. The following information is
available for the three year period of the construction project.
2015 2016 2017
Costs Incurred to Date $6,188,000 $12,360,000 $15,875,000
Estimated Costs to Complete 9,282,000 3,090,000 --
Billings to Date 6,400,000 18,890,000 22,000,000
Collections to Date 5,100,000 17,110,000 21,630,000
Required
1. Compute the amount of gross profit to be recognized for
each of the three years using the percentage of completion.
2. Prepare all necessary journal entries for the 2015, 2016, and
2017 years using the percentage of completion method.
3. Compute gross profit to be recognized for the three years of
2015, 2016, and 2017 using the completed contract method.
4. For each of the three years of 2015, 2016, and 2017:
a. Prepare the Income Statement section for Big Boss Construction
reporting percentage of completion information.   
b. Prepare the Balance Sheet section for Big Boss Constriction
reporting percentage of completion information.

Solutions

Expert Solution

  1. Recognition of Gross Profit under the Percentage of completion method

Particulars

       Year 2015(FIG IN $)

     Year 2016(FIG IN $)

      Year 2017(FIG IN $)

Contract Price

22000000

22000000

22000000

Cost incurred

To date

6188000

12360000

15875000

Add:estimated

Cost to complete

9282000

15470000

3090000

15450000

-

15875000

Total Estimated

Profit

6530,000

65,50,000

61,25,000

Percentage completed

Till date

40%

80%

100%

Total Gross Profit

Recognized

26,12,000

52,40,000

61,25,000

2.

Journal entries under percentage of completion method

Particulars

Debit($)

Credit( $)

Debit($)

Credit($)

Debit($)

Credit($)

Cost incurred to

Date

Construction in

Progress(CIP)

6188000

12360000

15875000

Accounts payable

6188000

12360000

15875000

Billing to date

Accounts Receivable

6400000

18890000

22000000

   Billing on CIP

6400000

18890000

22000000

Receiving Payament

Cash

5100000

17110000

21630000

   Accounts Receivable

5100000

17110000

21630000

Recording Revenue

Billing on CIP

6400000

18890000

22000000

Construction revenue a/c

6400000

18890000

22000000

Recording Expenses

Cost of construction

6188000

12360000

15875000

Construction in progress(CIP)

        

6188000

12360000

15875000

3.Recognition of Gross Profit under the completion contract method

Particulars

       Year 2015(fig in$)

     Year 2016(fig in $)

      Year 2017(fig in $)

Contract Price

22000000

22000000

22000000

Cost incurred

To date

6188000

12360000

15875000

Add:estimated

Cost to complete

9282000

15470000

3090000

15450000

-

15875000

Total Estimated

Profit

6530,000

65,50,000

61,25,000

Percentage completed

Till date

40%

80%

100%

Total Gross Profit

Recognized

Not applicable

Not applicable

61,25,000

4. a) INCOME STATEMENT SECTION

Particulars

Year 2015(fig in$)

Year 2016(fig in$)

Year 2017(fig in$)

Sales

8800000

17600000

22000000

Less : Cost of goods sold

6188000

12360000

15875000

Gross profit

2612000

5240,000

61,25,000

b. BALANCE SHEET":

Current liabilities

CIP

lESS: bILLINGS ON

construction


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