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In: Accounting

Construction Contracts A company is constructing a bridge at a fixed price of $15 million over...

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.

Solutions

Expert Solution

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)

ekkarill92 answered 2 years ago
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