Question

McCombs Contractors received a contract to construct a mental health facility for $2,500. Construction was begun in 2017 and completed in 2018. Cost and other data are presented below:

                                                                        2017                2018

Costs incurred during the year                           $1,500               $1,300
Estimated costs to complete                                1,200                        0
Billings during the year                                      1,200                  1,300
Cash collections during the year                          1,000                  1,500

1.Compute the amount of revenue and gross profit recognized during 2017 and 2018.

2.Assume that McCombs recognizes revenue on this contract over time according to percentage of completion. Prepare all journal entries for 2017 and 2018 to record costs, billings, collections, profit (loss) recognition, and transferring of the asset when construction is complete. Round your answers to the nearest whole dollar.

3.Assume that McCombs recognizes revenue upon project completion according to the percentage of completion. Prepare all journal entries for 2017 and 2018 to record costs, billings, collections, and profit (loss) recognition, and transferring of the asset when construction is complete. Round your answers to the nearest whole dollar.

Answer 1

Answer 1.
Percentage of Completion Method
	2017	2018
Cost Incurred each year (A)	1,500	1,300
Cost Incurred to date (B)	1,500	2,800
Estimated Costs ©	1,200	-
Total Estimated Costs (D = B + C)	2,700	2,800
% Completed (E = B / D)	55.56%	100.00%
Revenue	1,389	1,111
Expenses	1,500	1,300
Gross Profit	(111)	(189)

Answer 2. - Percentage of Completion
Journal Entry
Date	Particulars	Dr. Amt	Cr. Amt.
2017
1	Construction In Progress	1,500
	Cash		1,500
2	Accounts Receivable	1,200
	Billings on Contract		1,200
3	Cash	1,000
	Accounts Receivable		1,000
4	Construction Expense	1,500
	Construction Revenue		1,389
	Construction In Progress		111
2018
1	Construction In Progress	1,300
	Cash		1,300
2	Accounts Receivable	1,300
	Billings on Contract		1,300
3	Cash	1,500
	Accounts Receivable		1,500
4	Construction Expense	1,300
	Construction Revenue		1,111
	Construction In Progress		189
5	Billings on Contract	2,500
	Construction In Progress		2,500

Answer 3. - Completed Contract Method
	2017	2018
Cost Incurred each year (A)	1,500	1,300
Cost Incurred to date (B)	1,500	2,800
Estimated Costs ©	1,200	-
Total Estimated Costs (D = B + C)	2,700	2,800
Revenue	-	2,500
Expenses	-	2,800
Gross Profit	-	(300)

Journal Entry
Date	Particulars	Dr. Amt	Cr. Amt.
2017
1	Construction In Progress	1,500
	Cash		1,500
2	Accounts Receivable	1,200
	Billings on Contract		1,200
3	Cash	1,000
	Accounts Receivable		1,000
2018
1	Construction In Progress	1,300
	Cash		1,300
2	Accounts Receivable	1,300
	Billings on Contract		1,300
3	Cash	1,500
	Accounts Receivable		1,500
4	Construction Expense	2,800
	Construction Revenue		2,500
	Construction In Progress		300
5	Billings on Contract	2,500
	Construction In Progress		2,500