Question

During 2020, Skysong Company started a construction job with a contract price of $1,590,000. The job was completed in 2022. The following information is available.

		2020		2021		2022
Costs incurred to date		$396,000		$806,600		$1,080,000
Estimated costs to complete		594,000		283,400		–0–
Billings to date		301,000		892,000		1,590,000
Collections to date		268,000		816,000		1,427,000

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

Gross profit recognized in 2020		$enter a dollar amount
Gross profit recognized in 2021		$enter a dollar amount
Gross profit recognized in 2022		$enter a dollar amount

eTextbook and Media

List of Accounts

Prepare all necessary journal entries for 2021

Answer 1

Solution:

Computation of % of completion, revenue recognition and Gross Profit - Skysong Co
Year	Actual cost incurred (A)	Total cost incurred till date (B)	Total estimated Cost ( C )	% of completion (D) (B/C)	Contract Price (E)	Total Revenue to be recoganized (F) (E * D)	Revenue for current period (G)	Gross Profit (H) (G-A)
2020	$396,000	$396,000	$990,000	40.00%	$1,590,000	$636,000	$636,000	$240,000
2021	$410,600	$806,600	$1,090,000	74.00%	$1,590,000	$1,176,600	$540,600	$130,000
2022	$273,400	$1,080,000	$1,080,000	100.00%	$1,590,000	$1,590,000	$413,400	$140,000

Journal Entries - Skysong - 2021
Event	Particulars	Debit	Credit
1	Construction in Progress Dr	$410,600.00
	To Various Accounts		$410,600.00
	(To record construction cost incurred)
2	Accounts receivables Dr	$591,000.00
	To Billings on construction contract		$591,000.00
	(To record progress billings)
3	Cash Dr	$548,000.00
	To Accounts receivables		$548,000.00
	(To record collection from customer)
4	Construction in Progress Dr	$130,000.00
	Cost of construction Dr	$410,600.00
	To Revenue from long term contracts		$540,600.00
	(To record revenue and gross profit)