Question

Edwards Company contracted on 4/1/17 to construct a building for $4,800,000. The project was completed in 2019. Additional data follow: 2017 2018 2019 Costs incurred to date $1,120,000 $2,700,000 $3,800,000 Estimated cost to complete 2,080,000 900,000 — Billings to date 1,000,000 3,800,000 4,800,000 Collections to date 800,000 2,600,000 4,400,000 Instructions (a) Calculate the income recognized by Edwards under the percentage-of-completion method of accounting in each of the years 2017, 2018, and 2019. (b) Prepare all necessary entries for the year 2018. (c) Present the balance sheet disclosures at December 31, 2018. Proper headings or subheadings must be indicated.

Answer 1

SOLUTION

(A)

Year	Actual costs ($)	Estimated costs ($)	Estimated total costs ($)	% complete to date
2017	1,120,000	2,080,000	3,200,000	35%
2018	2,700,000	900,000	3,600,000	75%
2019	3,800,000	0	3,800,000	100%

2017-

Particulars	To date	Recognized in prior years ($)	Recognized in current year ($)
Construction revenue	1,000,000	0	1,000,000
Construction expense	(1,120,000)	0	(1,120,000)
Gross profit / (loss)	(120,000)	0	(120,000)

2018-

Particulars	To date	Recognized in prior years ($)	Recognized in current year ($)
Construction revenue	3,800,000	1,000,000	2,800,000
Construction expense	(2,700,000)	(1,120,000)	(1,580,000)
Gross profit / (loss)	(1,100,000)	(120,000)	1,220,000

2019-

Particulars	To date	Recognized in prior years ($)	Recognized in current year ($)
Construction revenue	4,800,000	3,800,000	1,000,000
Construction expense	(3,800,000)	(2,700,000)	(1,100,000)
Gross profit / (loss)	(1,000,000)	1,100,000	(100,000)

(B) Journal Entry-

Year	Accounts titles and Explanation	Debit ($)	Credit ($)
2018	Construction in progress	1,580,000
	Various accounts		1,580,000
	Accounts receivables	2,800,000
	Bolling on contsruction contract		2,800,000
	Cash	1,800,000
	Accounst receivables		1,800,000
	Cost of construction	1,580,000
	Contruction in progress	1,220,000
	Revenue from long term contract		2,800,000

(C) Balance sheet-

	Amount ($)
Current assets-
Accounts receivables	1,200,000
Cost and profit in excess of billings
Current liabilities-
Billings in excess of costs less loss	1,100,000