Question

Based on Exercise 18-33
During 2020, Kingbird Company started a construction job with a contract price of $1,610,000. The job was completed in 2022. The following information is available.
		2020		2021		2022
Costs incurred to date		$393,900		$760,380		$1,059,000
Estimated costs to complete		616,100		341,620		–0–
Billings to date		299,000		905,000		1,610,000
Collections to date		268,000		818,000		1,421,000

2. Prepare journal entries for all 3 years.

	2020	2021	2022
Contract Price	$1,610,000	$1,610,000	$1,610,000
Cost incurred to date	$393,900	$760,380	$1,059,000
Estimated cost yet to be incurred to complete the contract	$616,100	$341,620	$0
Total cost	$1,010,000	$1,102,000	$1,059,000
% of completion	39%	69%	100%
Revenue to date	$627,900	$1,110,900	$1,610,000
Revenue previous year	$0	$627,900	$1,110,900
Net revenue this year	$627,900	$483,000	$499,100
Cost to date	$393,900	$760,380	$1,059,000
Cost to date of previous year	$0	$393,900	$760,380
Net cost of the year	$393,900	$366,480	$298,620
Gross Profit	$234,000	$116,520	$200,480

Answer 1

a)

	2020	2021	2022
cost incurred till date	393900	760380	1059000
Estimated costs to complete	616100	341620	0
Total cost to complete	1010000	1102000	1059000
% of completion till date [cost incurred till date /total cost complete]	393900/1010000 .39 or 39%	760380/1102000 .69 or 69%	1059000/1059000 100%
Gross profit on contract [contract revenue - Total cost to complete]	1610000-1010000 =600000	1610000-1102000 =508000	1610000-1059000 =551000

	2020	2021	2022
Gross profit to be recognized till date (Gross profit *% of completion)	600000*39%=234000	508000*69%=350520	551000
less:Gross profit recognized in earlier years	0	-234000	-350520
Gross profit recognized in current year	234000	116520	200480

Revenue to date	$627,900 (1610000*39%)	$1,110,900 (1610000*69%)	$1,610,000 (1610000*100%)
Revenue previous year	$0	$627,900	$1,110,900
Net revenue this year	$627,900	$483,000	$499,100
Cost to date	$393,900	$760,380	$1,059,000
Cost to date of previous year	$0	$393,900	$760,380
Net cost of the year	$393,900	$366,480	$298,620
Gross Profit	$234,000	$116,520	$200,480

Date	Account title	Debit	credit
2020
1	construction in progress	393900
	cash /Accounts payable		393900
	(To record cost of construction)
2	Accounts receivable	299000
	Billing on construction in progress		299000
	(To record Billing)
3	cash	268000
	Accounts receivable		268000
	(To record Collections)
4	construction expense	393900
	construction in progress	234000
	construction revenue from long term Contract		627900
	(To recognise revenue)

working :

1)Construction cost during 2020 = (393900 cost incurred till date -0 cost in prior year ) = 393900

2)Billing during the year = 299000-0 = 299000

3)collection during the year = 268000-0=268000

Date	Account title	Debit	credit
2021
1	construction in progress	366480
	cash /Accounts payable		366480
	(To record cost of construction)
2	Accounts receivable	606000
	Billing on construction in progress		606000
	(To record Billing)
3	cash	550000
	Accounts receivable		550000
	(To record Collections)
4	construction expense	366480
	construction in progress	116520
	construction revenue from long term Contract		483000
	(To recognise revenue)

working :

1)Construction cost during 2021 = (760380 cost incurred till date -393900 cost in prior year ) = 366480

2)Billing during the year = 905000-299000 = 606000

3)collection during the year = 818000-268000=550000

Date	Account title	Debit	credit
2022
1	construction in progress	298620
	cash /Accounts payable		298620
	(To record cost of construction)
2	Accounts receivable	705000
	Billing on construction in progress		705000
	(To record Billing)
3	cash	603000
	Accounts receivable		603000
	(To record Collections)
4	construction expense	298620
	construction in progress	200480
	construction revenue from long term Contract		499100
	(To recognise revenue)

working :

1)Construction cost during 2022 = (1059000 cost incurred till date -760830 cost in prior year ) = 298620

2)Billing during the year = 1610000-905000 = 705000

3)collection during the year = 1421000-818000=603000