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

1)	2017	2017	2018	2018
% of completion	1500/(1200+1500)	0.56	1300/1300	1
revenue	2500*0.56	1400	2500-1400	1100
Gross profit	1400-1500	-100	1100-1300	-200
2. Journal Entries FOR 2017:
To record costs:
Debit	WIP	$1,500
Credit	Accounts Payable	$1,500
To record billings:
Debit	Accounts Receivable	1200
Credit	Progress Billings	1200
To record collections:
Debit	Cash	1000
Credit	Accounts Receivable	1000
To record loss recognition:
Debit	Progress Billings	1400
Credit	Revenue	1400
To record COGS:
Debit	Cost of Services	1500
Credit	WIP	1500
Journal Entries FOR 2018:
To record costs:
Debit	WIP	$1,300
Credit	Accounts Payable	$1,300
To record billings:
Debit	Accounts Receivable	1300
Credit	Progress Billings	1300
To record collections:
Debit	Cash	1500
Credit	Accounts Receivable	1500
To record loss recognition:
Debit	Progress Billings	1100
Credit	Revenue	1100
To record COGS:
Debit	Cost of Services	1300
Credit	WIP	1300
3. Journal Entries FOR 2017:
To record costs:
Debit	WIP	$1,500
Credit	Accounts Payable	$1,500
To record billings:
Debit	Accounts Receivable	1200
Credit	Progress Billings	1200
To record collections:
Debit	Cash	1000
Credit	Accounts Receivable	1000
Journal Entries FOR 2018:
To record costs:
Debit	WIP	$1,300
Credit	Accounts Payable	$1,300
To record billings:
Debit	Accounts Receivable	1300
Credit	Progress Billings	1300
To record collections:
Debit	Cash	1500
Credit	Accounts Receivable	1500
To record loss recognition:
Debit	Progress Billings	2500
Credit	Revenue	2500
	(1400+1100)
To record COGS:
Debit	Cost of Services	2800
Credit	WIP	2800
	(1500+1300)