Question

Deen Construction began a construction project in 2018. The contract price was $1,250,000, and the estimated costs were $1,000,000. Data for each year of the contract are as follows:

	2018	2019	2020
Costs incurred during the year	$250,000	$600,000	$190,000
Partial billings	$375,000	$500,000	$375,000
Estimated costs to complete	$750,000	$212,500	$0
Collections	$187,500	$469,000	$593,500

Instructions:

1. Assuming Deen the percentage of completion method:

(a) Prepare a schedule that computes the gross profit for 2018 - 2020

(b) Determine the net amount for construction in progress inventory should be reported on the 2018 balance sheet.

(c) Prepare all the necessary journal entries for 2019

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

You must show supporting computations to receive credit.

Answer 1

Answer:
1.(a)	Computation of % of completion, revenue recognition and Gross Profit - Deen Construction
Year	Actual cost incurred (A)	Total cost incurred till date (B)	Total estimated Cost ( C )	% of completion (D) (B/C)	Contract Price	Total Revenue to be recoganized (F) (E * D)	Revenue for current period (G)	Gross Profit (H) (G-A)
(E)
2018	$250,000	$250,000	$1,000,000	25.00%	$1,250,000	$312,500	$312,500	$62,500
2019	$600,000	$850,000	$1,062,500	80.00%	$1,250,000	$1,000,000	$687,500	$87,500
2020	$190,000	$1,040,000	$1,040,000	100.00%	$1,250,000	$1,250,000	$250,000	$60,000
1.(b)
Net amount of construction in progress inventory to be reported in 2018 balance sheet = Revenue recognized - Billing done
= $312,500 - $375,000 = ($62,500)
1.(c)	Journal Entries - Deen Construction- 2019
	1	Construction in Progress Dr	$600,000.00
		To Various Accounts		$600,000.00
	(To record construction cost incurred)
	2	Accounts receivables Dr	$500,000.00
		To Billings on construction contract		$500,000.00
	(To record progress billings)
	3	Cash Dr	$469,000.00
		To Accounts receivables		$469,000.00
	(To record collection from customer)
	4	Construction in Progress Dr	$87,500.00
		Cost of construction Dr	$600,000.00
		To Revenue from long term contracts		$687,500.00
	(To record revenue and gross profit)
2)	Computation of Gross Profit - Revenue on completion -Deen Construction Company
	Year	Actual cost incurred (A)	Total cost incurred till date (B)	Total estimated Cost ( C )	Contract Price	Gross Profit
	(D)
	2018	$250,000	$250,000	$1,000,000	$1,250,000	$0
	2019	$600,000	$850,000	$1,062,500	$1,250,000	$0
	2020	$190,000	$1,040,000	$1,040,000	$1,250,000	$210,000.00