Question

In: Accounting

Crane, Inc. began work on a $7,016,000 contract in 2020 to construct an office building. During...

Crane, Inc. began work on a $7,016,000 contract in 2020 to construct an office building. During 2020, Crane, Inc. incurred costs of $1,798,560, billed its customers for $1,125,000, and collected $910,000. At December 31, 2020, the estimated additional costs to complete the project total $3,197,440.

Prepare Crane’s 2020 journal entries using the percentage-of-completion method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For costs incurred use account Materials, Cash, Payables. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation

Debit

Credit

enter an account title to record costs incurred

enter a debit amount

enter a credit amount

enter an account title to record costs incurred

enter a debit amount

enter a credit amount

(To record costs incurred.)

enter an account title to record billings

enter a debit amount

enter a credit amount

enter an account title to record billings

enter a debit amount

enter a credit amount

(To record billings.)

enter an account title to record collections

enter a debit amount

enter a credit amount

enter an account title to record collections

enter a debit amount

enter a credit amount

(To record collections.)

enter an account title to recognize revenue

enter a debit amount

enter a credit amount

enter an account title to recognize revenue

enter a debit amount

enter a credit amount

enter an account title to recognize revenue

enter a debit amount

enter a credit amount

(To recognize revenue.)

Solutions

Expert Solution

Answer

1

2020
Contract price (a) $      7,016,000
Actual costs to date $      1,798,560
Estimated costs to complete $      3,197,440
Total estimated costs (b) $      4,996,000
Estimated (actual) gross profit (a-b) $      2,020,000
Percentage-of-completion = $1,798,560/$4,996,000= 36%
Gross Profit recognition: $         727,200
(36% x $2,020,000)
Date Accounts and Explanation Debit Credit
2020 Construction in process $      1,798,560
Materials, Cash, Payables $      1,798,560
(To record the cost incurred)
2020 Accounts receivable $      1,125,000
Billings on Construction in process $      1,125,000
(To record billings)
2020 Cash $         910,000
Accounts Receivable $         910,000
(To record the collections)
2020 Construction in process $         727,200
Construction Expenses $      1,798,560
Revenue from Long-term Contracts $      2,525,760

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