Question

Beavis Construction Company was the low bidder on a construction project to build an office building for $8,000,000. The project was begun in 2017 and completed in 2019. Cost and other data are presented below:

2017 2018 2019

Costs incurred during the year $ 1,500,000 $4,500,000 $1,550,000

Estimated costs to complete 4,500,000 1,500,000 -0-

Billings during the year 1,400,000 5,200,000 1,400,000

Cash collections during the year 1,000,000 4,000,000 3,000,000

Assume that Beavis recognizes revenue on this contract over time according to percentage of completion. Also assume that all construction costs are paid in Cash.

Required:

Compute the amount of revenue and gross profit recognized during 2017 and 2018.

Extra credit (9 points):

Prepare the 2018 journal entries to record:

a. Construction costs incurred during the year

b. Billings

c. Cash Collections

d. Revenue Recognition

Answer 1

particulas	year	year
	2017	2018	2019+	total
cost	15,00,000.00	45,00,000.00	15,50,000.00
estimate cost	45,00,000.00	15,00,000.00		60,00,000.00
billingds	14,00,000.00	52,00,000.00	14,00,000.00
cash collections	10,00,000.00	40,00,000.00
degree of compleion	cost incurred /estimated total cost to be incurred
	25%	80%
contract price	80,00,000.00
revenue	20,00,000.00	44,00,000.00	16,00,000.00	80,00,000.00
cost	15,00,000.00	45,00,000.00	15,50,000.00	75,50,000.00
profit	5,00,000.00	-1,00,000.00	50,000.00	4,50,000.00
2018 entires
parituclars	parituclars	debit	credit
costs	cip	45,00,000.00
	to cash		45,00,000.00
billings	accounts recievable	52,00,000.00
	to billing		52,00,000.00
cash collections	cash	40,00,000.00
	to accounts reiceivalbe		40,00,000.00
revenue recognition	cost	45,00,000.00
	cip		1,00,000.00
	to revenue		44,00,000.00

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