Question

During 2020, Grouper 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		$434,300		$859,560		$1,073,000
Estimated costs to complete		575,700		242,440		–0–
Billings to date		301,000		897,000		1,610,000
Collections to date		271,000		817,000		1,428,000

Compute the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used.

Prepare all necessary journal entries for 2021. (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. For costs incurred use account Materials, Cash, Payables.)

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

Answer 1

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Part 1
	2020	2021	2022
Contract price	$                                                    1,610,000	$                                                                                 1,610,000	$                                                                                 1,610,000
Actual costs to date	$                                                        434,300	$                                                                                    859,560	$                                                                                 1,073,000
Estimated costs to complete	$                                                        575,700	$                                                                                    242,440	$                                                                                                -
Total estimated costs	$                                                    1,010,000	$                                                                                 1,102,000	$                                                                                 1,073,000
Estimated gross profit
(actual in 2022)	$                                                        600,000	$                                                                                    508,000	$                                                                                     537,000
Revenue Recognition:	43.00%	78.00%
2020	$434,300/$1,010,000	= 43% x $1,610,000	$                                                                                     692,300
2021	$859,560/$1,102,000	= 78% x $1,610,000 = $1,255,800 – 692,300	$                                                                                     563,500
2022	$1,610,000-$692,300-$354,200		$                                                                                     354,200
Gross profit (loss) recognized:
2020	$692,300-$434,300		$                                                                                     258,000
2021	$563,500-($859,560-$434,300)		$                                                                                     138,240
2022	$354,200-($1,073,000-$859,560)		$                                                                                     140,760
Part 2a and 2b
			Year 2021
Construction in Progress			$                                                                                     425,260
Various Accounts			$                                                                                     425,260
Accounts Receivable			$                                                                                     897,000
Billing on Construction Contracts			$                                                                                     897,000
Cash			$                                                                                     817,000
Accounts Receivable			$                                                                                     817,000
Cost of Construction			$                                                                                     138,240
Construction in progress			$                                                                                     425,260
Revenue from long term contracts			$                                                                                     563,500
Completed Contract:
	Revenue Recognition:	Gross profit (loss) recognized:
2020	$                                                                   -	$                                                                                                -
2021	$                                                                   -	$                                                                                                -
2022	$                                                    1,610,000	$                                                                                    537,000
Total	$                                                    1,610,000	$                                                                                    537,000