Question

Thrasher Construction Co. was contracted to construct a building for $975,000. The building is owned by the customer throughout the contract period. The contract provides for progress payments. Thrasher’s accounting year ends 31 December. Work began under the contract on 1 July 20X5, and was completed on 30 September 20X7. Construction activities are summarized below by year:

20X5 Construction costs incurred during the year, $180,000; estimated costs to complete, $630,000; progress billings during the year, $153,000; and collections, $140,000. 20X6 Construction costs incurred during the year, $450,000; estimated costs to complete, $190,000; progress billing during the year, $382,500; and collections, $380,000. 20X7 Construction costs incurred during the year, $195,000. Because the contract was completed, the remaining balance was billed and later collected in full per the contract.

Required: 1. Prepare Thrasher’s journal entries to record these events. Assume that percentage of completion is measured by the ratio of costs incurred to date divided by total estimated construction costs. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to the nearest whole dollar.)

Answer 1

Gross profit in Construction contrect

975000-180000-450000-195000=150000

Journal entries in the books of Thrasher

To recorded cost incurred for 20X5

work in progress A/C Dr $180000

To account payable and other $180000

To recorded the amount bill

Account recievable A/C Dr $153000

To Bills $153000

To recorded amount of collection

Cash A/C Dr $140000

To account recievable $140000

For the year 20X6

To recorded cost incurred

Work in progress A/C Dr $450000

To account payable and other $450000

To recorded the amount Bills

Account recievable A/C Dr $382500

To Bills $382500

to recorded for collection

Cash A/C Dr $380000

To account recievable $380000

For the year 20X7

work in progress A/C Dr $195000

to account payable and other $195000

To recorded total revenue (Contract amount)

BillingA/C Dr $975000

Construction contrect Revenue $975000

Expense for Construction (180000+450000+195000)

Cost of Construction $825000

To work in progress $825000

To recorded Pending bills (975000-153000-382500)

Account recievable A /C Dr $438500

To bills $453000

To Complete collection (975000-140000-380000)

Cash A /C Dr $4550000

To account recievable $4550000