Question

In February 2017, Sheridan Construction signed a contract and commenced construction on a parking garage. The total contract price was $90.9 million, and was expected to be completed in July 2021 at a total estimated cost of $82.9 million. Payment by the customer was to be made in several stages, based on significant events and dates throughout the construction timeline. The customer was to have control over the parking garage and was able to make major changes to the project during the construction process. Sheridan’s year-end was September 30.

By the end of September, 2017, Sheridan had incurred $12,435,000 in costs and had invoiced $10,100,000 in progress billings. $9,100,000 of the progress billings had been collected.

By September 30, 2018, Sheridan had incurred $51,415,000 in total costs and had invoiced $45,200,000 in progress billings, including the progress billings in 2017. Of the total billings, $30,400,000 in total had been collected. Also, Sheridan reviewed its cost estimates on the project, and now believed the parking garage would cost $79.1 million in total to complete.

Prepare all journal entries required for the year ended September 30, 2017. Use Accounts Payable for costs incurred to date. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(To record the 2017 cost of construction)

(To record the 2017 progress billings)

(To record the 2017 cash collections)

(To record the 2017 revenue)

(To record the construction expenses)

Prepare all journal entries required for the year ended September 30, 2018. Use Accounts Payable for costs incurred to date. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(To record the 2018 cost of construction)

(To record the 2018 progress billings)

(To record the 2018 cash collections)

(To record the 2018 revenue)

(To record the 2018 expenses)

Answer 1

Journal entries for the year ended 30th Sep 2017 assuming Percentage of Completion Method
S No	Account	Debit	Credit
1	Construction in progress account	12,435,000
	To Accounts Payable		12,435,000
	(Being Cost of construction recorded)
2	Accounts Receivable	10,100,000
	To Progress Billings		10,100,000
	(Being progress billing recorded)
3	Cash	9,100,000
	To Accounts Receivable		9,100,000
	(Being cash collections)
4	Construction in progress account	1,200,000
	Construction expense account	12,435,000
	To Revenue		13,635,000
	(Being expense and revenue recorded*)
	Notes
	*Revenue to be recognized in 2017
	Estimated cost	A	82,900,000
	Cost incurred till Sep 2017	B	12,435,000
	% of completion as at 30th Sep 2017	C=B/A	15%
	Contract price	D	90,900,000
	Revenue to be recognized	E=C*D	13,635,000
	Net income	E-B	1,200,000
Journal entries for the year ended 30th Sep 2018 assuming Percentage of Completion Method
1	Construction in progress account*	38,980,000
	To Accounts Payable		38,980,000
	(Being Cost of construction recorded)
2	Accounts Receivable	35,100,000
	To Progress Billings		35,100,000
	(Being progress billing recorded)
3	Cash	21,300,000
	To Accounts Receivable		21,300,000
	(Being cash collections)
4	Construction in progress account****	6,470,000
	Construction expense account	38,980,000
	To Revenue		45,450,000
	(Being expense and revenue recorded*)
	Notes:
*	Total cost incurred till 2018	51,415,000
	Less: Already incurred in 2017	12,435,000
	Construction in Progress account for 2018	38,980,000
**	Total Progress Billings till 2018	45,200,000
	Less: Progress Billings in 2017	10,100,000
	Progress billings for 2018	35,100,000
***	Cash collectios till 2018	30,400,000
	Less: Collected in 2017	9,100,000
	Cash Collection in 2018	21,300,000
****	Revenue to be recognized in 2018
	Estimated cost	A	79,100,000
	Cost incurred till Sep 2018	B	51,415,000
	% of completion as at 30th Sep 2017	C=B/A	65%
	Contract price	D	90,900,000
	Revenue to be recognized	E=C*D	59,085,000
	Less: already recognized in 2017	F	13,635,000
	Revenue to be recognized in 2018	G	45,450,000