Question

Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,720,000. The project was begun in 2015 and completed in 2016. Cost and other data are presented below: 2015 2016 Costs incurred during the year $ 411,000 $1,020,000 Estimated costs to complete 959,000 0 Billings during the year 465,000 1,310,000 Cash collections during the year 365,000 1,410,000 Assume that Beavis recognizes revenue on this contract over time according to percentage of completion. Required: Prepare all journal entries to record costs, billings, collections, and profit recognition. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

2015:

Contract price                                            $17,20,000

Actual costs to date $411000

Estimated costs to complete $951000

Total estimated project costs $13,62,000

Estimated total gross profit $3,58,000

Percentage of completion:

($411000 / 1362000)                                  30%

Gross profit recognized                              $1,07,400

2016:

Contract price                                             $17,20,000

Costs incurred:

2015                                        $4,11,000

2016                                        $10,20,000

Total cost                                                   $14,31,000

Total gross profit $2,89,000

Recognized in 2015                                    $1,07,400

Recognized in 2016                                    $1,81,600

Journal entries to record costs, billings, collections, and profit recognition

2015

Dr     Construction in progress                  411,000

Cr      Cash or A/P                                                          411,000

Dr     Accounts receivable                 465,000

Cr      Billings on construction contract                465,000

Dr     Cash                                        365,000

Cr      Accounts receivable                                    365,000

Dr     Construction in progress                  1,07,400

Dr     Cost of construction 411,000

Cr      Revenue from long-term contracts 5,18,400

2016:

Dr     Construction in progress                   10,20,000

Cr      Cash or A/P                                                         10,20,000

Dr     Accounts receivable                 13,10,000

Cr      Billings on construction contract                13,10,000

Dr     Cash                                        14,10,000

Cr      Accounts receivable                                    14,10,000

Dr     Construction in progress                  1,81,600

Dr     Cost of construction 10,20,000

Cr      Revenue from long-term contracts 12,01,600

Dr     Billings on construction contract      17,20,000

Cr      Construction in progress 17,20,000