Question

During 2020, Riverbed Company started a construction job with a contract price of $1,610,000. The job was completed in 2022. T

he following information is available. 2020 2021 2022

Costs incurred to date $383,800 $905,280 $1,063,000

Estimated costs to complete 626,200 198,720 –0–

Billings to date 302,000 896,000 1,610,000

Collections to date 271,000 817,000 1,419,000

Compute the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used.

Gross profit recognized in 2020		$
Gross profit recognized in 2021		$
Gross profit recognized in 2022		$

Prepare all necessary journal entries for 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. For costs incurred use account Materials, Cash, Payables.)

(To record cost of construction.)

(To record progress billings.)

(To record collections.)

(To recognize revenue.)

Compute the amount of gross profit to be recognized each year, assuming the completed-contract method is used.
Gross profit 2020? 2021? 2022?

Answer 1

a)

	2020	2021	2022
cost incurred till date	383800	905280	1063000
Estimated costs to complete	626200	198720	0
Total cost to complete	1010000	1104000	1063000
% of completion till date [cost incurred till date /total cost complete]*100	383800/1010000*100 38%	905280/1104000*100 82%	100%
Gross profit on contract [contract revenue - Total cost to complete]	$1610000 - $1010000 $600000	$1610000 - $1104000 $506000	$1610000 - $1063000 $547000

	2020	2021	2022
Gross profit to be recognized till date (Gross profit *% of completion)	$600000*38% $228000	$506000*82% $414920	$547000*
less:Gross profit recognized in earlier years	0	$228000	$424920
Gross profit recognized in current year	$228000	$186920	$122080

b)

Date	Account Title	Debit	Credit
2021
1	construction in progress	$521480
	cash /Accounts payable		$521480
2	Accounts receivable	$594000
	Billing on construction in progress		$594000
3	cash	$546000
	Accounts receivable		$546000
4	construction expense	$521480
	construction in progress	$186920
	construction revenue		$708400

Workings

1)Construction cost during 2021 = (905280 cost incurred till date -383800 cost in prior year ) =$521480

2)Billing during the year =896000-302000 =$594000

3)collection during the year = 817000-271000=$546000