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In: Accounting

A company began work in 2020 on a contract for $7,800. Other data are as follows:...

A company began work in 2020 on a contract for $7,800. Other data are as follows:

2020 2021
costs incurred to due $3,000 5,600
estimated costs to complete 2,000 ----------
Billings to date 3,100 7,800
collections to date 1,000 4,400

If the company uses the percentage-of-completion method, for the journal entry that records construction revenue, construction expense, and gross profit for 2020, how much will be recorded for Construction in Process?

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Expert Solution

2020 2021
Cost Incurred to Due (A) $       3,000 $       5,600
Estimated cost to complete (B) $       2,000 $           -  
Total Cost (C) (C=A+B) $     5,000 $     5,600
Percentage of Completion {(A/C)*100} 60% 100%
Contract Price $       7,800 $       7,800
Revenue to date (D) ( Contract Price*Percentage of Completion $       4,680 $       7,800
Revenue of Previous year {E} $           -   $       4,680
Net Revenue this year ( D-E ) $     4,680 $     3,120
Cost to date (F ) (C*Percentage of Completion ) $       3,000 $       5,600
Cost to date of previous year (G) $           -   $       3,000
Net Cost for the year ( F-G ) $     3,000 $     2,600
Gross Profits ( Net Revenue - Net Cost ) $     1,680 $        520

Based on the above workings,

Construction Revenue for 2020 and 2021 are $ 4,680 and $ 3,120 respectively.

Construction Cost for 2020 and 2021 are $ 3,000 and $ 2,600 respectively.

Gross Profit for 2020 and 2021 are $ 1,680 and $ 520 respectively.


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