Question

In January 2010, Construction Corp. contracted to construct a building for $ 6,000,000. Construction started in early 2010 and was completed in 2011. The following additional information is available:

                                                                                                   2010                       2011

       Costs incurred............................................................. $ 2,430,000            $ 2,700,000

       Estimated costs to complete............................................. 2,600,000                         —

       Collections during the year.............................................. 2,400,000               3,600,000

         Billings for the year …………………………………………..     2,800,000                3,200,000

Used the percentage-of-completion method.

Instructions

Under the contract-based approach,

a)     How much revenue should be reported for 2010 and 2011?

b)    Prepare all journal entries for 2010 and 2011 for this contract.

Answer 1

Solution a:

Computation of % of completion, revenue recognition and Gross Profit - Construction Corp.
Year	Actual cost incurred (A)	Total cost incurred till date (B)	Total estimated Cost ( C )	% of completion (D) (B/C)	Contract Price (E)	Total Revenue to be recoganized (F) (E * D)	Revenue for current period (G)	Gross Profit (H)
2010	$2,430,000	$2,430,000	$5,030,000	48.31%	$6,000,000	$2,898,608	$2,898,608	$468,608
2011	$2,700,000	$5,130,000	$5,130,000	100.00%	$6,000,000	$6,000,000	$3,101,392	$401,392

Solution b:

Journal Entries - Construction Corp. - 2010
Event	Particulars	Debit	Credit
1	Construction in Progress Dr	$2,430,000.00
	To Various Accounts		$2,430,000.00
	(To record construction cost incurred)
2	Accounts receivables Dr	$2,800,000.00
	To Billings on construction contract		$2,800,000.00
	(To record progress billings)
3	Cash Dr	$2,400,000.00
	To Accounts receivables		$2,400,000.00
	(To record collection from customer)
4	Construction in Progress Dr	$468,608.00
	Cost of construction Dr	$2,430,000.00
	To Revenue from long term contracts		$2,898,608.00
	(To record revenue and gross profit)

Journal Entries - Construction Corp. - 2011
Event	Particulars	Debit	Credit
1	Construction in Progress Dr	$2,700,000.00
	To Various Accounts		$2,700,000.00
	(To record construction cost incurred)
2	Accounts receivables Dr	$3,200,000.00
	To Billings on construction contract		$3,200,000.00
	(To record progress billings)
3	Cash Dr	$3,600,000.00
	To Accounts receivables		$3,600,000.00
	(To record collection from customer)
4	Construction in Progress Dr	$401,392.00
	Cost of construction Dr	$2,700,000.00
	To Revenue from long term contracts		$3,101,392.00
	(To record revenue and gross profit)