Question

During 2020, Shamrock Company started a construction job with a contract price of $1,600,000. The job was completed in 2022. The following information is available.

		2020		2021		2022
Costs incurred to date		$405,900		$830,680		$1,074,000
Estimated costs to complete		584,100		262,320		–0–
Billings to date		302,000		898,000		1,600,000
Collections to date		272,000		818,000		1,420,000

Compute the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used.

Gross profit recognized in 2020		$enter a dollar amount
Gross profit recognized in 2021		$enter a dollar amount
Gross profit recognized in 2022		$enter a dollar amount

  

  

Prepare all necessary journal entries for 2021. (Credit account titles are automatically indented when 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. For costs incurred use account Materials, Cash, Payables.)

Account Titles and Explanation	Debit	Credit
enter an account title to record cost of construction	enter a debit amount	enter a credit amount
enter an account title to record cost of construction	enter a debit amount	enter a credit amount
(To record cost of construction.)
enter an account title to record progress billings	enter a debit amount	enter a credit amount
enter an account title to record progress billings	enter a debit amount	enter a credit amount
(To record progress billings.)
enter an account title to record collections	enter a debit amount	enter a credit amount
enter an account title to record collections	enter a debit amount	enter a credit amount
(To record collections.)
enter an account title to recognize revenue	enter a debit amount	enter a credit amount
enter an account title to recognize revenue	enter a debit amount	enter a credit amount
enter an account title to recognize revenue	enter a debit amount	enter a credit amount
(To recognize revenue.)

  

  

Compute the amount of gross profit to be recognized each year, assuming the completed-contract method is used.

		2020		2021		2022
Gross profit		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount

Answer 1

• Percentage of completion method

Requirement 1
	2020	2021	2022
Gross Profits (Loss)	$250,100	$135,220	$140,680

Working		2020	2021	2022
A	Contract Price	$1,600,000	$1,600,000	$1,600,000
B	Cost Incurred to Date	$405,900	$830,680	$1,074,000
C	Estimated cost yet to be incurred to complete the contract	$584,100	$262,320	$0
D = B+C	Total Cost	$990,000	$1,093,000	$1,074,000
E = (B/D) x 100	% of Completion	41.00%	76.00%	100.00%
F = A x E	Revenue to date	$656,000	$1,216,000	$1,600,000
G	Revenue of Previous year	$0	$656,000	$1,216,000
H = F - G	Net Revenue this year	$656,000	$560,000	$384,000
I (=B)	Cost to date	$405,900	$830,680	$1,074,000
J	Cost to date of previous year	$0	$405,900	$830,680
K = I - J	Net Cost for the year	$405,900	$424,780	$243,320
L = H - K	Gross Profits	$250,100	$135,220	$140,680

• Journal entries

Date	Accounts title	Debit	Credit
2021	Construction in Progress	$424,780
	Materials, Cash, Payables		$424,780
	(construction cost incurred)
2021	Accounts receivables	$596,000
	Billing on Construction contracts		$596,000
	(amount billed during the year)
2021	Cash	$546,000
	Accounts receivables		$546,000
	(cash received)
2021	Construction in Progress	$135,220
	Cost of construction or Construction expense	$424,780
	Revenue from Long Term contract		$560,000
	(revenue recognised)

• Completed contract method

Gross Profits in:
2020 = $ 0
2021 = $ 0
2020 = $ 1600000-1074000 = $ 526,000