Question
In: Accounting
At the beginning of 2021 Carefree Contracting Corporation (CCC) enters into a contract to build a...
At the beginning of 2021 Carefree Contracting Corporation (CCC) enters into a contract to build a home for a customer that is expected to take three years to complete. The contract price is $4,000,000. Completion is scheduled for the end of 2023. CCC's year end is December 31.
|
2021 |
2022 |
2023 |
|
|
Actual costs incurred current year |
$750,000 |
$2,250,000 |
$775,000 |
|
actual costs incurred prior years |
-0- |
750,000 |
3,000,000 |
|
Cumulative actual costs incurred to date |
750,000 |
3,000,000 |
3,775,000 |
|
Estimated costs to complete end of year |
2,250,000 |
750,000 |
-0- |
|
Total Costs |
$3,000,000 |
$3,750,000 |
$3,775,000 |
|
Billings |
$700,000 |
$2,600,000 |
$700,000 |
|
Cash Collections |
500,000 |
2,000,000 |
1,500,000 |
a. Compute the gross profit for 2021, 2022 and 2023 using the percentage-of-completion method.
b. Compute the gross profit for 2021, 2022 and 2023 using the zero gross profit method.
c. Prepare all necessary entries for 2021 assuming the use of the percentage-of-completion method.
d. Determine the net asset or net liability position for CCC at the end of 2021 and 2022 assuming that the percentage of completion method is used. e. Prepare the closing entry in 2023 under the percentage of completion method. f. Prepare the closing entries in 2023 under the zero gross profit method is used.
Solutions
Expert Solution
a. gross profit using the percentage-of-completion method.
| Year | Cost | Cumulative Cost Incurred | Cumulative % of completion | Year on Year % | Cumulative revenue to be recognized | Year on Year revenue | Gross profit |
| 2021 | $ 750,000.00 | 750000 | 20% | 20% | $ 794,702 | $ 794,702 | $ 44,702 |
| 2022 | $ 2,250,000.00 | 3000000 | 79% | 60% | $ 3,178,808 | $ 2,384,106 | $ 134,106 |
| 2023 | $ 775,000.00 | 3775000 | 100% | 21% | $ 4,000,000 | $ 821,192 | $ 46,192 |
| $ 225,000 |
b. gross profit using the zero gross profit method.
| Year | Cost | Year on Year revenue | Gross profit |
| 2021 | $ 750,000.00 | $ 700,000 | $ (50,000) |
| 2022 | $ 2,250,000.00 | $ 2,600,000 | $ 350,000 |
| 2023 | $ 775,000.00 | $ 700,000 | $ (75,000) |
c.Journal entries using the percentage-of-completion method.
| Year | Particular | Debit amount | Credit amount |
| 2021 | CIP | $ 750,000.00 | |
| Cash | $ 750,000.00 | ||
| Account Receivable | $ 700,000.00 | ||
| Billings | $ 700,000.00 | ||
| Cash | $ 500,000.00 | ||
| Account Receivable | $ 500,000.00 | ||
| Construction Expenses | $ 750,000.00 | ||
| Construction In Progress | $ 44,702.00 | ||
| Revenue | $ 794,702.00 |
| Year | Particular | Debit amount | Credit amount |
| 2022 | CIP | $ 2,250,000.00 | |
| Cash | $ 2,250,000.00 | ||
| Account Receivable | $ 2,600,000.00 | ||
| Billings | $ 2,600,000.00 | ||
| Cash | $ 2,000,000.00 | ||
| Account Receivable | $ 2,000,000.00 | ||
| Construction Expenses | $ 2,250,000.00 | ||
| Construction In Progress | $ 134,106.00 | ||
| Revenue | $ 2,384,106.00 | ||
| Year | Particular | Debit amount | Credit amount |
| 2023 | CIP | $ 775,000.00 | |
| Cash | $ 775,000.00 | ||
| Account Receivable | $ 700,000.00 | ||
| Billings | $ 700,000.00 | ||
| Cash | $ 1,500,000.00 | ||
| Account Receivable | $ 1,500,000.00 | ||
| Construction Expenses | $ 775,000.00 | ||
| Construction In Progress | $ 46,192.00 | ||
| Revenue | $ 821,192.00 |
e.closing entry
| Billings | $ 40,000.00 | |
| CIP | $ 40,000.00 |
d.
| Particular | 2021 | 2022 |
| Cash | -250000 | -500000 |
| Account Receivable | 200000 | 800000 |
| Unbilled Revenue | 44102 | -171792 |
| Net Assets | -5898 | 128208 |
| Retained Earnings | 44102 | 134106 |
| Net Liability | 44102 | 134106 |
ekkarill92 answered 2 years agoRelated Solutions
On January 15, 2021, Bella Vista Company enters into a contract to build custom equipment for...
On January 15, 2021, Bella Vista Company enters into a contract
to build custom equipment for ABC Carpet Company. The contract
specified a delivery date of March 1. The equipment was not
delivered until March 31. The contract required full payment of
$75,000 30 days after delivery. The revenue for this contract
should be
recorded on January 15, 2021.
recorded on April 30, 2021.
recorded on March 1, 2021.
recorded on March 31, 2021.
On January 15, 2021, Concord Company enters into a contract to build custom equipment for Shamrock...
On January 15, 2021, Concord Company enters into a contract to
build custom equipment for Shamrock Company. The contract specified
a delivery date of March 1. The equipment was not delivered until
March 31. The contract required full payment of $75,000 30 days
after delivery. The revenue for this contract should be ...?
Cullumber Construction enters into a contract with a customer to build a warehouse for $1070000 on...
Cullumber Construction enters into a contract with a customer to
build a warehouse for $1070000 on March 30, 2021 with a performance
bonus of $40000 if the building is completed by July 31, 2021. The
bonus is reduced by $8000 each week that completion is delayed.
Cullumber commonly includes these completion bonuses in its
contracts and, based on prior experience, estimates the following
completion outcomes:
Completed by
Probability
July 31, 2021
70%
August 7, 2021
20%
August 14, 2021
5%...
Cullumber Construction enters into a contract with a customer to build a warehouse for $1070000 on...
Cullumber Construction enters into a contract with a customer to
build a warehouse for $1070000 on March 30, 2021 with a performance
bonus of $40000 if the building is completed by July 31, 2021. The
bonus is reduced by $8000 each week that completion is delayed.
Cullumber commonly includes these completion bonuses in its
contracts and, based on prior experience, estimates the following
completion outcomes:
Completed by
Probability
July 31, 2021
70%
August 7, 2021
20%
August 14, 2021
5%...
Waterway Corp. enters into a contract with a customer to build an apartment building for $1,069,900....
Waterway Corp. enters into a contract with a customer to build
an apartment building for $1,069,900. The customer hopes to rent
apartments at the beginning of the school year and provides a
performance bonus of $153,300 to be paid if the building is ready
for rental beginning August 1, 2021. The bonus is reduced by
$51,100 each week that completion is delayed. Waterway commonly
includes these completion bonuses in its contracts and, based on
prior experience, estimates the following completion...
Cheyenne Corp. enters into a contract with a customer to build an apartment building for $995,600....
Cheyenne Corp. enters into a contract with a customer to build
an apartment building for $995,600. The customer hopes to rent
apartments at the beginning of the school year and provides a
performance bonus of $145,500 to be paid if the building is ready
for rental beginning August 1, 2018. The bonus is reduced by
$48,500 each week that completion is delayed. Cheyenne commonly
includes these completion bonuses in its contracts and, based on
prior experience, estimates the following completion...
Indigo Corp. enters into a contract with a customer to build an apartment building for $1,061,800....
Indigo Corp. enters into a contract with a customer to build an
apartment building for $1,061,800. The customer hopes to rent
apartments at the beginning of the school year and provides a
performance bonus of $139,200 to be paid if the building is ready
for rental beginning August 1, 2021. The bonus is reduced by
$46,400 each week that completion is delayed. Indigo commonly
includes these completion bonuses in its contracts and, based on
prior experience, estimates the following completion...
Problem 5 Sage Corp. enters into a contract with a customer to build an apartment building...
Problem 5
Sage Corp. enters into a contract with a customer to build an
apartment building for $1,069,900. The customer hopes to rent
apartments at the beginning of the school year and provides a
performance bonus of $153,300 to be paid if the building is ready
for rental beginning August 1, 2018. The bonus is reduced by
$51,100 each week that completion is delayed. Sage commonly
includes these completion bonuses in its contracts and, based on
prior experience, estimates the...
On January 2, 2019, TI enters into a contract with Drewry Corp. to build a new...
On January 2, 2019, TI enters into a contract with Drewry Corp.
to build a new piece of equipment. The contract price is
$3,200,000, and construction is expected to take 18 months. Drewry
is billed and pays $1,600,000 of the contract price on January 2,
2019, and will pay the balance at completion.
TI estimates that the cost of construction will be
$2,300,000.
Drewry includes two performance bonuses in the contact:
•
U.S. Bonus: If the equipment design receives a...
The Young Company enters into a long-term project to build a new office building. The Contract...
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...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Holly bought a 7-year bond, with a 3% coupon paid semi annually. It was priced to...
- METAR Abbreviations METAR (Meteorological Aviation Report) is a format for reporting weather information, either for pilots...
- The data below are the heights of fathers and sons (inches). There are 8 rows in...
- Without quantization procedure how much of actual information is lost during analog to digital conversion process??...
- 11. Suppose that a 32M × 16 memory built using 512K × 8 RAM chips and...
- Write a C++ program that asks the user to enter in three numbers and displays the...
- Economist Steven Landsburg argues that if one believes in the death penalty for murderers because of...
ADVERTISEMENT