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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