Question

Hardhat has a contract to construct a $5,000,000 bridge at an estimated cost of $4,000,000. The

contract is to start in 2016 and will be completed in 2018. Below is the data for 2016-18:

2016                          2017                         2018

Costs to date                                               1,000,000 2,900,000                 4,100,000

Est. costs to complete                              3,000,000                 1,200,000 -

Progress billings during year                   900,000                    2,400,000                 1,700,000

Cash collected during year                      750,000                    2,250,000                 2,000,000

Compute the percentage of completion, and record the journal entries to recognize revenue,

expenses, and gross profit for 2016-18 using the percentage of completion method (Do not

record journal entries for costs incurred, progress billings, and cash collected during 2016-18)?

Answer 1

	Contract price	$5,000,000
		2016	2017	2018
	Cost incurred to date	$1,000,000	$2,900,000	$4,100,000
	Estimated costs to complete	$3,000,000	$1,200,000	$0
	Billings to date	$900,000	$2,400,000	$1,700,000
	Collections per year	$750,000	$2,250,000	$2,000,000
	% of Completion	25.00%	70.73%	100.00%
	Revenue to be recognised(cumulative)	$1,250,000.00	$3,536,585.37	$5,000,000.00
	Gross profit(cumulative)	$250,000.00	$636,585.37	$900,000.00
	Gross profit(year)	$250,000.00	$386,585.37	$263,414.63
Journal Entries		2016			2017			2018
	Construction in progress A/c   Dr.(gross profit)	$250,000			$386,585			$263,415
	Construction expense A/c Dr.	$1,000,000			$1,900,000			$1,200,000
	To, Revenue from long term contract		$1,250,000			$2,286,585			$1,463,415

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