In: Accounting
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.
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 |