Question

In: Accounting

2. At the end of 2018, Builders Inc. has one project underway to build a warehouse....

2. At the end of 2018, Builders Inc. has one project underway to build a warehouse. The project was begun in early 2017. The contract amount is $50,000,000 and the project is expected to be completed in late 2019. Data on this project are presented below:

Costs incurred in 2017 $8,000,000

Billings in 2017 $6,000,000

Estimated cost to complete at 12/31/17 $32,000,000

Additional costs incurred in 2018 $19,000,000

Billings in 2018 $15,000,000

Estimated cost to complete at 12/31/18 $18,000,000

Required:

1) For the Percentage of Completion Method, prepare the journal entries to record (a) the costs incurred, (b) the billings, and (c) recognition of any revenue or expense for both 2017 and 2018.

2) For the Percentage of Completion Method, present the income statement and balance sheet disclosure that would be required for 2017 and 2018.

Solutions

Expert Solution

Computation of revenue and expenses for the Year 2017 & 2018:

Amount in $
Particulars 2018 2019
Cost incurred during the year A                     8,000,000                  19,000,000
Cost incurred during previous year/years B                                    -                       8,000,000
Estimated cost still to be incurred C                   32,000,000                  18,000,000
Total Cost D=A+B+C                   40,000,000                  45,000,000
Percentage Completion till date E=(A+B)/D 20.00% 60.00%
Percentage work already completed till last year F 0 20.00%
Percentage revenue to be considered this year G=E-F 20.00% 40.00%
Revenue $                   10,000,000                  20,000,000
H=50000000*G (50000000*20.00%) (50000000*40.00%)
Expenses $                     8,000,000                  19,000,000
Gross Profit                     2,000,000                     1,000,000

1. Journal Entries for 2017:

Account Titles and Explanations Debit Credit
Construction in progress (CIP) $8,000,000
        Various Accounts $8,000,000
(Being entry made for recording cost incurred)
Accounts Receivable $6,000,000
          Billing on CIP $6,000,000
(Being entry made for recording billings)
Construction Expense $8,000,000
Construction in progress (CIP) $2,000,000
          Construction Revenue $10,000,000
(Being entry made for recording revenue)

Journal Entries for 2018:

Account Titles and Explanations Debit Credit
Construction in progress (CIP) $19,000,000
        Various Accounts $19,000,000
(Being entry made for recording cost incurred)
Accounts Receivable $15,000,000
          Billing on CIP $15,000,000
(Being entry made for recording billings)
Construction Expense $19,000,000
Construction in progress (CIP) $1,000,000
          Construction Revenue $20,000,000
(Being entry made for recording revenue)

2. Income statement for the year ending 2017:

Income:
       Revenue $10,000,000
Expenses:
         Cost of Construction $8,000,000
Gross Profit $2,000,000

Income statement for the year ending 2018:

Income:
       Revenue $20,000,000
Expenses:
         Cost of Construction $19,000,000
Gross Profit $1,000,000
Balance Sheet(Partial)
(As at December, 2017)
Current Assets: $
Accounts Receivable      6,000,000
CIP (Work in progress)      4,000,000
Balance Sheet(Partial)
(As at December, 2018)
Current Assets:
Accounts Receivable               21,000,000
CIP (Work in progress)                 9,000,000

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