Question

In 2020 Coco Corporation signed a contract to construct a major office building for a developer.  The construction is expected to take 3 years.  The contract price is $50 million.  The actual costs incurred each year, the estimated costs of completing the project as of the end of each year, the progress billings for each year, and the collections of those billings each year are presented in the chart below.

	2020	2021	2022
Actual costs incurred during each individual year	$10,000,000	15,000,000	12,500,000
Estimated costs (in future years) to complete, as of the end of each individual year	30,000,000	14,000,000	---
Billings during each individual year	11,000,000	16,500,000	22,500,000
Collections during each individual year	10,275,000	15,225,000	22,000,000

1. Prepare, in good, easy-to-follow form, a schedule computing the amount of revenues or gross profit (your choice) to be recognized on this project in each year using the percentage-of-completion.
2. Prepare all the journal entries required in 2021 by the information provided.
3. Explain, precisely, the amounts to be reported in the 2020 income statement and the December 31, 2017 balance sheet for this contract.

Answer 1

Sollution A

Computation of the amount of Gross profit to be recognized
		Working	2020	2021	2022
a	Cost to date(cumulative)		10,000,000	25,000,000	37,500,000
b	Estimated Total cost to complete		40,000,000	39,000,000	37,500,000
c	Billing		11,000,000	16,500,000	22,500,000
d	Cash collected		10,275,000	15,225,000	22,000,000
e	% Completed (a/b)	cost incurred to date /Estimated total cost	25.00	64.10	100.00
f	Revenue Recognised	(Contract price *percentage Of Completion) - Revenue Recognised Previously	12,500,000	19,551,282	17,948,718
g	Costs under the percentage of completion method:		10,000,000	15,000,000	12,500,000
h	Gross profit (f-g)		2,500,000	4,551,282	5,448,718

Sollution B

Journal Entries - Coco Corporation for the year 2021
as per Percentage-of-completion method.
Date	Particulars	Debit	Credit
1	Construction in progress	$15,000,000.00
	Accounts payable		$15,000,000.00
	(To record Incurring cost)
2	Accounts Receivable a/c	$16,500,000.00
	Billing on Construction in progress		$16,500,000.00
	(To record billing)
3	Cash A/c	$15,225,000.00
	Accounts Receivable		$15,225,000.00
	(Being Received payment)
4	Construction Expense	$15,000,000.00
	Construction in progress	$4,551,282.05
	construction Revenue		$19,551,282.05
	(for period end adjustment for revenue )

Sollution C

Income Statement	2020	2021	2022
Revenue recognized	12,500,000	19,551,282	17,948,718
Costs Incurred	10,000,000	15,000,000	12,500,000
Gross Profit/(Loss)	2,500,000	4,551,282	5,448,718
Partial Balance sheet
Balance sheet	2020	2021	2022
Contract Assets:
Construction in progress	1,500,000	4,550,000	0
Accounts Receivable	725,000	2,000,000	2,500,000
Total	2,225,000	6,550,000	2,500,000
Working for Balance sheet
	2020	2021	2022
Construction in progress
Construction in progress	12,500,000	32,050,000	50,000,000
Less:- Billing	11,000,000	27,500,000	50,000,000
Cost In Excess of Billing	1,500,000	4,550,000	0
Accounts Receivable
Opening Balance	0	725000	2000000
Add:- Billing During The year	11,000,000	16,500,000	22,500,000
Less: Cash Collected	10,275,000	15,225,000	22,000,000
Closing Balance	725,000	2,000,000	2,500,000