Question

Penobscot Nuclear has a contract to build a state of the art breeder reactor in Maine. This will be the first reactor built in the U.S. in many years and the only breeder reactor in the country. The contract cost is $1 billion and is expected to take 4 years to complete.

Here are some relevant facts (all numbers in the table are in millions):

Contract price: $1,000 Million

	2016	2017	2018	2019
construction cost incurred in the current year:	$100	$300	$400	$180
Estimated cost to complete the contract at the end of the year:	$700	$400	$450	$0
Billing on the contract in the current year	$120	$340	$400	$140
Dollars collected on billings in the current year	$80	$360	$320	$240

Complete the required jorunal entries for each year using the percentage-of-completion contract method. also show the relevant balance sheet and income statement presentation, and complete T-accounts for construction-in-progress and billings-on-contract accounts.

Penobscot Nuclear
Balance sheet
December 31, 2015

Cash $800

Retained Earnings $ 300
Common Stock 500
Total Equity $ 800

Answer 1

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Due to character limit I am attaching image of the Balance sheet.  

Penobscot Nuclear
Calculation of Gross Profit
Particulars	2016	2017	2018	2019
Contract Price	1,000	1,000	1,000	1,000		A
Cost Incurred during the year	100	300	400	180		B
Estimated cost to complete	700	400	450	-		C
Cost Incurred to date	100	400	800	980		D
(Sum total of the cost incurred during the year)
Estimated total cost	800	800	1,250	980		E=C+D
Percentage complete	12.50%	50.00%	64.00%	100.00%		F=D/E
(Cost Incurred to date/Estimated total cost)
Revenue to be recognized	125	375	140	360		G
(Contract Price*Percentage complete)- revenue previously recognized
Year 2016: 12.5% completed. Revenue recognized = 12.5% x $ 1,000 = $ 125 million.
Year 2017: 50% completed. Revenue recognized = 50% x $ 1,000 – $ 125 (previously recognized) = $ 375 million.
Year 2018: 64% completed. Revenue recognized = 64% x $ 1,000 – $ 125- $ 375 (previously recognized) = $140 million.
Year 2019: 100% completed. Revenue recognized = 100% x $ 1,000 – $ 125- $ 375 - $ 140 (previously recognized) = $ 360 million.
Gross Profit/(Loss)	25	75	(260)	180		H=G-B
Billings during the year	120.00	340.00	400.00	140.00
Collection during the year	80.00	360.00	320.00	240.00

		2016			2017			2018			2019
	Journal Entries	Debit $	Credit $		Debit $	Credit $		Debit $	Credit $		Debit $	Credit $
Costs Incurred	CIP (Work-in-progress)	100			300			400			180
	Cash		100			300			400			180
Billing	Accounts Receivable	120			340			400			140
	Billing on CIP		120			340			400			140
Receiving Payments	Cash	80			360			320			240
	Accounts Receivable		80			360			320			240
Period end adjustments for Revenue	Construction Expense	100			300						180
(Gross Profit entry)	CIP (Work-in-progress)	25			75						180
	Construction Revenue		125			375						360
Period end adjustments for Revenue	Construction Expense							400			180
(Gross Loss entry)	CIP (Work-in-progress)								260
	Construction Revenue					375			140
											1000
Completing the Project	Billing on CIP											1000
	CIP (Work-in-progress)

T accounts
CIP (Work-in-progress)
Account	Amount ($)
Cash	100
Construction Revenue	25
Balance at the end of 2016	125
Cash	300
Construction Revenue	75
Balance at the end of 2017	500
Cash	400
Construction Revenue	(260)
Balance at the end of 2018	640
Cash	180
Construction Revenue	180
Billing on CIP	(1,000)
Balance at the end of 2019	-
Cash
Account	Amount ($)
Opening Balance	800
CIP (Work-in-progress)	(100)
Accounts Receivable	80
Balance at the end of 2016	780
CIP (Work-in-progress)	(300)
Accounts Receivable	360
Balance at the end of 2017	840
CIP (Work-in-progress)	(400)
Accounts Receivable	320
Balance at the end of 2018	760
CIP (Work-in-progress)	(180)
Accounts Receivable	240
Balance at the end of 2019	820
Accounts Receivable
Account	Amount ($)
Billing on CIP	120
Cash	(80)
Balance at the end of 2016	40
Billing on CIP	340
Cash	(360)
Balance at the end of 2017	20
Billing on CIP	400
Cash	(320)
Balance at the end of 2018	100
Billing on CIP	140
Cash	(240)
Balance at the end of 2019	-
Billing on CIP
Account	Amount ($)
Accounts Receivable	120
Balance at the end of 2016	120
Accounts Receivable	340
Balance at the end of 2017	460
Accounts Receivable	400
Balance at the end of 2018	860
Accounts Receivable	140
CIP (Work-in-progress)	(1,000)
Balance at the end of 2019	-
Retained Earnings
Account	Amount ($)
Opening Balance	300
Gross Profit for 2016	25
Balance at the end of 2016	325
Gross Profit for 2017	75
Balance at the end of 2017	400
Gross Profit for 2018	(260)
Balance at the end of 2018	140
Gross Profit for 2019	180
Balance at the end of 2019	320

Income Statement	2016	2017	2018	2019
Revenue	125.00	375.00	140.00	360.00
Cost	100.00	300.00	400.00	180.00
Gross Profit/(Loss)	25.00	75.00	(260.00)	180.00