Question

The Ugenti Construction Company contracted to construct a warehouse building for $2,600,000. Construction began in 2016 and was completed in 2017. Data relating to the contract are summarized below:

                                                                                   2016                  2017

      Costs incurred during the year.................      $   360,000         $1,650,000

      Estimated costs to complete as of 12/31.        1,560,000                   -      

      Billings during the year ..........................           430,000         2,170,000

      Cash collections during the year..............           320,000         2,280,000

Required:

1.   Compute the amount of gross profit or loss to be recognized in 2016 and 2017 using the percentage-of-completion method (over time method).

2.   Compute the amount of gross profit or loss to be recognized in 2016 and 2017 using the completed contract method (at point in time).

Using Excel, complete this construction handout using the either the format in the textbook or the format in the ABC Construction Contract Worksheet Example posted in Bb. Include all necessary journal entries to record the cost of construction, progress billings, entry to recognize revenue and gross profit and entry to record final approval of the contract.

Answer 1

1		2016	2017
	Contract price (a)	$2,600,000	$2,600,000
	Actual costs to date	$360,000	$2,010,000
	Estimated costs to complete	$1,560,000	-
	Total estimated costs (b)	$1,920,000	$2,010,000
	Estimated (actual) gross profit (a-b)	$680,000	$590,000
	Percentage-of-completion = $ 360,000/$1,920,000 =	18.75%
	Gross Profit recognition:	$127,500	$462,500
	(18.75% x $680,000), ($590,000 - $127,500)
2		2016	2017
	Completed contract method, Gross Profit	-	$590,000
Date	Accounts and Explanation	Debit	Credit
2016	Work-in-progress	$360,000
	Accounts payable and others		$360,000
	(To record the cost incurred)
2016	Accounts receivable	$430,000
	Billings		$430,000
	(To record the amount billed)
2016	Cash	$320,000
	Accounts Receivable		$320,000
	(To record the collections)
2017	Work-in-progress	$1,650,000
	Accounts payable and others		$1,650,000
	(To record the cost incurred)
2017	Accounts receivable	$2,170,000
	Billings		$2,170,000
	(To record the amount billed)
2017	Cash	$2,280,000
	Accounts Receivable		$2,280,000
	(To record the collections)
2017	Billings	$2,600,000
	Construction Contracts Revenue		$2,600,000
	(To record the revenue)
2017	Cost of construction	$2,010,000
	Work-in-progress		$2,010,000
	(o expense out the work-in-progress)