Question

Dalton Construction Co. contracted to build a bridge for $8,000,000. Construction began in 2018 and was completed in 2019. Data relating to the construction are: 2018 2019 Costs incurred during the year $2,105,600 $2,408,400 Estimated costs to complete 2,374,400 ― Dalton uses the percentage-of-completion method.

Part 1 How much revenue should be reported for 2018?

Part 2 Make the entry to record progress billings of $2,905,600 during 2018. (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.)

Account Titles and Explanation	Debit	Credit

Part 3 Make the entry to record the revenue and gross profit for 2018. (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.)

Account Titles and Explanation	Debit	Credit

Part 4 How much gross profit should be reported for 2019?

Gross profit

$

Answer 1

Solution

Dalton Construction Co

1. Determination of the amount of revenue to be reported for 2018:

contract amount x [cost incurred/(cost incurred + estimated costs to complete]

contract amount = $8,000,000

cost incurred = $2,105,600

Estimated costs to complete = $2,374,400

Revenue to be reported for 2018 = $8,000,000 x [2,105,600/(2,105,600 + 2,374,400)] = $3,760,000

Gross profit = 3,760,000 – 2,105,600 = $1,654,400

2. Entry to record progress billings of $2,105,600:

Date	Account Titles and Explanation	Ref. No.	Debit	Credit
	Accounts Receivable		$2,105,600
	Billing on Construction in Process			$2,105,600

3. Entry to record the revenue and gross profit for 2018:

Date	Account Titles and Explanation	Ref. No.	Debit	Credit
	Construction Expenses		$2,105,600
	Construction in Process		$1,654,400
	Revenue from Long-Term Contracts			$3,760,000

4. How much gross profit to be reported in 2019:

Gross profit in 2019 = $1,831,600

Revenue	$8,000,000
costs incurred	$4,514,000
Gross Profit	$3,486,000
Recognized in 2018	$1,654,400
Recognized in 2019	$1,831,600

Alternatively,

Total revenue	$8,000,000
Recognzied in 20`18	$3,760,000
Recognized in 2019	$4,249,000
Costs in 2019	$2,408,400
Gross profit in 2019	$1,831,600