Question

During 2020, Blossom Company started a construction job with a contract price of $1,590,000. The job was completed in 2022. The following information is available.

		2020		2021		2022
Costs incurred to date		$410,000		$901,180		$1,067,000
Estimated costs to complete		590,000		197,820		–0–
Billings to date		297,000		903,000		1,590,000
Collections to date		271,000		805,000		1,434,000

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

Gross profit recognized in 2020		$enter a dollar amount
Gross profit recognized in 2021		$enter a dollar amount
Gross profit recognized in 2022		$enter a dollar amount

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.)

Account Titles and Explanation	Debit	Credit
enter an account title to record cost of construction	enter a debit amount	enter a credit amount
enter an account title to record cost of construction	enter a debit amount	enter a credit amount
(To record cost of construction.)
enter an account title to record progress billings	enter a debit amount	enter a credit amount
enter an account title to record progress billings	enter a debit amount	enter a credit amount
(To record progress billings.)
enter an account title to record collections	enter a debit amount	enter a credit amount
enter an account title to record collections	enter a debit amount	enter a credit amount
(To record collections.)
enter an account title to recognize revenue	enter a debit amount	enter a credit amount
enter an account title to recognize revenue	enter a debit amount	enter a credit amount
enter an account title to recognize revenue	enter a debit amount	enter a credit amount
(To recognize revenue.)

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

		2020		2021		2022
Gross profit		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount

Answer 1

ANSWER

1)

Contract Price =		$ 1,590,000.00
				2020	2021	2022
a)	Cost incurred (cumulative)			$       410,000.00	$      901,180.00	$   1,067,000.00
b)	Estimated cost to complete			$       590,000.00	$      197,820.00	-
c)	Estimated total cost		(a+b)	$   1,000,000.00	$ 1,099,000.00	$   1,067,000.00
d)	% of completion		(a/c)	41%	82%	100%

For the schedule above, revenues under the percentage of completion method:
Year	% of completion		Contract Price		Revenues	Previously Recognized			Net Revenue
2020	41%		$   1,590,000.00		$      651,900.00		$                       -		$      651,900.00
2021	82%		$   1,590,000.00		$   1,303,800.00		$      651,900.00		$      651,900.00
2022	100%		$   1,590,000.00		$   1,590,000.00		$ 1,303,800.00		$      286,200.00
Total Net Revenue									$ 1,590,000.00

Costs under the percentage of completion method:
Year		Cost	Previously Recognized			Net cost
2020		$      410,000.00	$                        -			$      410,000.00
2021		$      901,180.00	$       410,000.00			$      491,180.00
2022		$ 1,067,000.00	$       901,180.00			$      165,820.00
Total net cost						$ 1,067,000.00

Gross Profit Recognization:
Year	Net Revenue		Net Cost		Gross Profit
2020	$ 651,900.00		$       410,000.00		$      241,900.00
2021	$ 651,900.00		$       491,180.00		$      160,720.00
2022	$ 286,200.00		$       165,820.00		$      120,380.00

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2)

Date	Account Titles	Debit	Credit
2018	Construction in Progress	491180
	Materials, cash ,Payables		491180
	[901,180-410,000]
2018	Accounts Receivable	606000
	Billing on Construction in Progress		606000
	[903,000-297,000]
2018	Cash
	Accounts Receivable	534000
	[805,000-271,000]		534000
2018	Construction Expense	491180
	Construction in Progress	160720
	Revenue from Contract		651900

Workings:

1. Revenue to be recognized for 2017:

Estimated Costs =410000+590000 = 1,000,000

Percentage of completion = 410000/ 1000000 = 41%

Estimated Profit = 1,590,000 - 1,000,000 = 590,000

Revenue to be recognized in 2017 = 590,000 *41% = 241900

2. Revenue to be recognized in 2018:

Estimated Costs =901180+197820 = 1,099,000

Percentage of completion = 901180/ 1099000 = 82%

Estimated Profit = 1,590,000 - 1,099,000 = 491,000

Revenue to be recognized in 2018 = (491,000 *82%) - 241,900 = 402,620 -241,900 = 160,720

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