Question

Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,800,000. The project was begun in 2012 and completed in 2013. Cost and other data are presented below:

                                                                                    2012                           2013

Costs incurred during the year                               $450,000                $ 1.100,000

Estimated costs to complete 1,050,000                      0

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

Cash collections during the year                             300,000                     1,500,000

Assume that Beavis uses the percentage- of- completion method for revenue recognition.

Required:

Compute the amount of gross profit recognized during 2012 and 2013.

Prepare all journal entries related to the construction project in 2012 and 2013.

Prepare Statement of Financial Position end of 2012 and 2013 (if any).

(please provide the answer step by step)

Answer 1

2012:		$1800000
Contract price	450000
Actual costs to date	1050000
Estimated costs to complete		1500000
Total estimated project costs
Estimated total gross profit		300000
Percentage of completion: $450,000/ $1,500,000		30%
Gross profit recognized		$90000
2013:
Contract price		$1800000
Costs incurred:
2012	$450000
2013	1100000
Total cost		1550000
Total gross profit		250000
Recognized in 2012		90000
Recognized in 2013		$160000

General journal	Debit	Credit
2012:
Construction in progress	450000
Cash		450000
Accounts receivable	400000
Billings on construction contract		400000
Cash	300000
Accounts receivable		300000
Construction in progress	90000
Cost of construction	450000
Revenue from long-term contracts		540000
2013:
Construction in progress	1100000
Cash		1100000
Accounts receivable	1400000
Billings on construction contract		1400000
Cash	1500000
Accounts receivable		1500000
Construction in progress	160000
Cost of construction	1100000
Revenue from long-term contracts		1260000
Billings on construction contract	1800000
Construction in progress		1800000

2012:		$0
2013:
Contract price		$1800000
Costs incurred:
2012:	$450000
2013:	$1100000
Total costs		$1550000
Total gross profit		$250000