In: Accounting
Construction Contracts
A company is constructing a bridge at a fixed price of $15 million over three years. The customer remains in control of the bridge throughout the contract. The expected costs and billings are provided below.
Year |
1 |
2 |
3 |
Expected Cost |
4,000,000 |
4,500,000 |
3,500,000 |
Billings |
5,000,000 |
5,000,000 |
5,000,000 |
Required
Assume the percentage of completion CAN be measured reliably.
b. |
If the actual cost for Year 2 is $6,500,000 while costs for Year 1 and 3 remain unchanged: Prepare all journal entries relating the contract for Year 1-3. |
Percentage of Completion Method | |||
Illustration | year 1 | year 2 | year 3 |
Cost Incured to date | 4000000 | 10500000 | 14000000 |
Estimated cost to complete | 8040000 | 3480000 | 0 |
Estimated Total Contract Cost | 4000000 | 8500000 | 12000000 |
Estimated Percentage Complete | 33 | 71 | 100 |
Contract price | 15000000 | 15000000 | 15000000 |
Revenue Recognizable | 4950000 | 10650000 | 15000000 |
Revenue Recognized Prior year | 4950000 | 15600000 | |
Revenue Recognized currently | 4950000 | 15600000 | 30600000 |
Cost Incured currently | -4000000 | -10500000 | -16000000 |
Income Recognized currently | 950000 | 5100000 | 14600000 |
Journal Entries for 3 Yrs | ||||||
Year 1. | Year 2. | Year 3. | ||||
Particulars | Dr | Cr | Dr | Cr | Dr | Cr |
Contract In Progesss | 4000000 | 6500000 | 3500000 | |||
Cash | 4000000 | 6500000 | 3500000 | |||
( For inccuring cost) | ||||||
Accounts Recievable | 5000000 | 5000000 | 5000000 | |||
Billing on Contract in Progress | 5000000 | 500000 | 5000000 | |||
(for Billing) | ||||||
Cash Account | 5000000 | 500000 | 5000000 | |||
Accounts Recievable | 5000000 | 500000 | 5000000 | |||
(Receiving Payments) | ||||||
(for Cash receipts) | ||||||
Billing on Contract in Progress | 5000000 | 5000000 | 5000000 | |||
Profit On contract | 1000000 | -1500000 | 1500000 | |||
Contract In Progesss | 4000000 | 6500000 | 3500000 | |||
(Completing the Job) |