Question
In: Accounting
McCombs Contractors received a contract to construct a mental health facility for $2,500,000. Construction was begun...
McCombs Contractors received a contract to construct a mental health facility for $2,500,000. Construction was begun in 2020 and completed in 2021. Cost and other data are presented below:
2020 2021
Costs incurred during the year $1,500,000 $1,300,000
Estimated costs to complete 1,200,000 0
Billings during the year 1,200,000 1,300,000
Cash collections during the year 1,000,000 1,500,000
Part 1: Assume that McCombs recognizes revenue on this contract over time according to percentage of completion. Required: Compute the amount of gross profit recognized during 2020 and 2021.
Part 2: Assume that McCombs recognizes revenue on this contract over time according to percentage of completion. Required: Prepare all journal entries to record costs, billings, collections, and profit (loss) recognition. Round your answers to the nearest whole dollar.
Part 3: Assume that McCombs recognizes revenue upon project completion. Required: Compute the amount of gross profit recognized by McCombs during 2020 and 2021.
Solutions
Expert Solution
| McCombs Contractor | 2020 | 2021 | |||||||||
| Ans to 1 | Calculation of Gross Profit | Ans to 2 | Journal Entries | Debit $ | Credit $ | Debit $ | Credit $ | ||||
| Particulars | 2020 | 2021 | Note | Costs Incurred | CIP (Work-in-progress) | 15,00,000 | 13,00,000 | ||||
| Contract Price | 25,00,000 | 25,00,000 | A | Cash | 15,00,000 | 13,00,000 | |||||
| Cost Incurred during the year | 15,00,000 | 13,00,000 | B | ||||||||
| Estimated cost to complete | 12,00,000 | - | C | Billing | Accounts Receivable | 12,00,000 | 13,00,000 | ||||
| Cost Incurred to date | 15,00,000 | 28,00,000 | D | Billing on CIP | 12,00,000 | 13,00,000 | |||||
| (Sum total of the cost incurred during the year) | |||||||||||
| Estimated total cost | 27,00,000 | 28,00,000 | E=C+D | Receiving Payments | Cash | 10,00,000 | 15,00,000 | ||||
| Percentage complete | 55.56% | 100.00% | F=D/E | Accounts Receivable | 10,00,000 | 15,00,000 | |||||
| (Cost Incurred to date/Estimated total cost) | |||||||||||
| Revenue to be recognized | 13,88,889 | 11,11,111 | G | Period end adjustments for Revenue | Construction Expense | 15,00,000 | |||||
| (Contract Price*Percentage complete)- revenue previously recognized | (Gross Profit/Loss entry) | CIP (Work-in-progress) | 1,11,111 | ||||||||
| Year 2020: 55.56% completed. Revenue recognized = 55.56% x $ 2,500,000 = $ 1,388,889. | Construction Revenue | 13,88,889 | |||||||||
| Year 2021: 100% completed. Revenue recognized = 100% x $ 2,500,000 – $ 1,388,889 (previously recognized) = $ 1,111,111 | |||||||||||
| Period end adjustments for Revenue | Construction Expense | 13,00,000 | |||||||||
| Gross Profit/(Loss) | (1,11,111) | (1,88,889) | H=G-B | (Gross Profit/Loss entry) | CIP (Work-in-progress) | 1,88,889 | |||||
| Billings during the year | 12,00,000 | 13,00,000.00 | Construction Revenue | 11,11,111 | |||||||
| Collection during the year | 10,00,000 | 15,00,000.00 | |||||||||
| Ans to 3 | Calculation of Gross Profit | ||||||||||
| Particulars | 2020 | 2021 | Note | ||||||||
| Contract Price | 25,00,000 | 25,00,000 | A | ||||||||
| Cost Incurred during the year | 15,00,000 | 13,00,000 | B | ||||||||
| Estimated cost to complete | 12,00,000 | - | C | ||||||||
| Cost Incurred to date | 15,00,000 | 28,00,000 | D |
 ekkarill92 answered 1 year agoRelated SolutionsMcCombs Contractors received a contract to construct a mental health facility for $2,500. Construction was begun...McCombs Contractors received a contract to construct a mental
health facility for $2,500. Construction was begun in 2017 and
completed in 2018. Cost and other data are presented below:
2017
2018
Costs incurred during the
year
$1,500
$1,300
Estimated costs to
complete
1,200
0
Billings during the
year
1,200
1,300
Cash collections during the
year
1,000
1,500
1. Compute the amount of revenue and gross profit recognized
during 2017 and 2018.
2. Assume that McCombs recognizes revenue on this...
McCombs Contractors received a contract to construct a mental health facility for $2,500. Construction was begun...McCombs Contractors received a contract to construct a mental
health facility for $2,500. Construction was begun in 2017 and
completed in 2018. Cost and other data are presented below:
2017
2018
Costs incurred during the
year
$1,500
$1,300
Estimated costs to
complete
1,200
0
Billings during the
year
1,200
1,300
Cash collections during the
year
1,000
1,500
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