Question
In: Accounting
During 2015, Nilsen Company started a construction job with a contract price of $3,200,000. The job...
During 2015, Nilsen Company started a construction job with a
contract price of $3,200,000. The job was completed in 2017. The
following information is available:
2015 2016 2017
Costs incurred to date $ 800,000 $1,650,000 $2,140,000
Estimated costs to complete 1,200,000 550,000 -0-
Billings to date 600,000 1,800,000 3,200,000
Collections to date 540,000 1,620,000 2,850,000
Required:
a. Prepare all the necessary accounting entries for 2015, 2016
&2017, assuming the percentage-of-completion method is
used.
b. Prepare all the necessary accounting entries for 2015, 2016
&2017, assuming the cost-recovery method is used.
Solutions
Expert Solution
| Given in question, | ||||
| Contract price | 3,200,000 | |||
| Start year | 2015 | |||
| End year | 2016 | |||
| Amounts in $ | 2015 | 2016 | 2017 | |
| Costs incurred to date | $ 800,000 | $1,650,000 | $2,140,000 | |
| Estimated costs to complete | 1,200,000 | 550,000 | - | |
| Billings to date | 600,000 | 1,800,000 | 3,200,000 | |
| Collections to date | 540,000 | 1,620,000 | 2,850,000 |
Step 1: Calculation of percentage of completion for each year
| Amounts in $ | Note | 2015 | 2016 | 2017 | |
| Costs incurred to date | A | 800,000 | 1,650,000 | 2,140,000 | |
| Add: Estimated costs to complete | B | 1,200,000 | 550,000 | - | |
| Estimated total costs | C = A + B | 2,000,000 | 2,200,000 | 2,140,000 | |
| Percentage of completion | D = A / C | 40% | 75% | 100% | |
| Step 2: Calculation of revenue for each year | |||||
| Amounts in $ | Note | 2015 | 2016 | 2017 | |
| Revenue up to date | E = D X contract price [i.e. 3,200,000] | 1,280,000 | 2,400,000 | 3,200,000 | |
| Less: Revenue up to previous year | - | (1,280,000) | (2,400,000) | ||
| Revenue fro the year | F | 1,280,000 | 1,120,000 | 800,000 | |
| Step 2: Calculation of Gross profit | |||||
| Amounts in $ | Note | 2015 | 2016 | 2017 | |
| Costs incurred to date | Given in question | 800,000 | 1,650,000 | 2,140,000 | |
| Less: Cost up to previous year | Given in question | (800,000) | (1,650,000) | ||
| Cost for the year | G | 800,000 | 850,000 | 490,000 | |
| Gross profit | H = F - G | 480,000 | 270,000 | 310,000 | |
| Incurring costs | 2015 | 2016 | 2017 | Note | |
| Contract in progress (Work-in-progress) | Debit | 800,000 | 850,000 | 490,000 | See Note G |
| Accounts payable | Credit | 800,000 | 850,000 | 490,000 | See Note G |
| [Being cost for the year recorded] | |||||
| Billing | |||||
| Accounts receivables | Debit | 600,000 | 1,200,000 | 1,400,000 | Cumulative billing in question of current year |
| Billing of CIP (Revenue) | Credit | 600,000 | 1,200,000 | 1,400,000 | Less: Cumulative billing in question of previous year |
| [Being invoice raised to customer accounted for] | Please note this is not revenue recognition. Only invoice is being booked at this stage | ||||
| Receiving payments | |||||
| Cash/Bank | Debit | 540,000 | 1,080,000 | 1,230,000 | Cumulative collection in question of current year |
| Accounts receivables | Credit | 540,000 | 1,080,000 | 1,230,000 | Less: Cumulative collection in question of previous year |
| [Being amount received from customer accounted for] | |||||
| Period-end adjustment for revenue [ Percentage completion method] | |||||
| Contract in progress (Work-in-progress) | Debit | 480,000 | 270,000 | 310,000 | See note H |
| Construction expenses | Debit | 800,000 | 850,000 | 310,000 | See note G |
| Construction revenue | Credit | 1,280,000 | 1,120,000 | 800,000 | See note F |
| [Being revenue, expenses and gross profit booked as per calculation] | |||||
| Completing the project | |||||
| Billing of CIP (Revenue) | Debit | 3,200,000 | |||
| Contract in progress (Work-in-progress) | Credit | 3,200,000 | |||
| [Being contract balance set off after completion of contract] |
 ekkarill92 answered 1 year agoRelated SolutionsDuring 2015 Cambridge Co. started a construction job with a contract price of $2,000,000. The job...
During 2015 Cambridge Co. started a construction job with a
contract price of $2,000,000.
The job
was completed in 2017. The following information is available:
2015
2016
2017
Costs
incurred to date
500,000
900,000
1,100,000
Estimated costs to complete
600,000
200,000
0
Billings
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500,000
1,400,000
2,000,000
Collections to date
450,000
1,300,000
1,800,000
Instructions:
(a)
Compute the amount of gross profit to be recognized each year
assuming the percentage of
completion method is used.
(b)
****EXTRA CREDIT -...
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2022
Costs incurred to date
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328,500
–0–
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Collections to date
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Compute the amount of gross profit to be recognized each year,
assuming the percentage-of-completion method is used.
Gross profit recognized in 2020
$enter a dollar amount...
During 2020, Martinez Company started a construction job with a contract price of $1,610,000. The job...During 2020, Martinez Company started a construction job with a
contract price of $1,610,000. The job was completed in 2022. The
following information is available.
2020
2021
2022
Costs incurred to date
$405,900
$766,500
$1,076,000
Estimated costs to complete
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328,500
–0–
Billings to date
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1,610,000
Collections to date
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Compute the amount of gross profit to be recognized each year,
assuming the percentage-of-completion method is used.
Gross profit recognized in 2020
$enter a dollar amount...
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gross profit to be recognized each year, assuming the
percentage-of-completion method is used. Gross profit recognized in
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Compute the amount of gross profit to be recognized each year,
assuming the percentage-of-completion method is used.
Gross profit recognized in 2020
$
Gross profit...
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Compute the amount of gross profit to be recognized each year,
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–0–
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Compute the amount of gross profit to be recognized each year,
assuming the percentage-of-completion method is used.
Gross profit recognized in 2020
$enter a dollar amount...
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2017
2018
2019
Costs incurred to date
$393,900 $760,380
$1,059,000
Estimated costs to complete
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–0–
Billings to date 299,000
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Collections to date
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Compute the amount of gross profit to be recognized each year,
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Part 1
Compute the amount of gross profit to be recognized each year,
assuming the percentage-of-completion method is used.
Gross profit recognized in 2020
$
Gross...
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