In: Accounting
On January 2, 2019, TI enters into a contract with Drewry Corp. to build a new piece of equipment. The contract price is $3,200,000, and construction is expected to take 18 months. Drewry is billed and pays $1,600,000 of the contract price on January 2, 2019, and will pay the balance at completion.
TI estimates that the cost of construction will be $2,300,000.
Drewry includes two performance bonuses in the contact:
• | U.S. Bonus: If the equipment design receives a U.S. patent by March 15, 2020, Drewry will pay a $200,000 bonus. |
• | International Bonus: If the equipment receives approval for international distribution by January 31, 2020, Drewry will pay a $1,000,000 bonus. |
The bonuses are payable when a U.S. patent is approved and when international distribution is approved.
On the date the contract is signed, TI estimates that there is an 80% chance it will receive U.S. patent protection by March 15, 2020, but only a 30% chance that the equipment will be approved for international distribution.
TI received a U.S. patent on the equipment design on November 15, 2019, and immediately billed Drewry and received its bonus payment. On December 31, 2019, TI has incurred $1,840,000 of contract costs and is 80% complete. TI won approval for international distribution on January 15, 2020, and completed the equipment project on April 15, 2020, at a cost of $2,300,000.
Required:
1. | Identify the performance obligations in the contract. |
2. | Provide the journal entries that TI should make to recognize revenue from the contract. |
2. Prepare the journal entries to record | |
1. | the initial contract billing and receipt on January 2, 2019 |
2. | the patent billing and receipt on November 15 |
3. | contract costs incurred for the year on December 31 |
4. | profit recognized for the year on December 31 |
5. | the partial contract billing and receipt on January 15, 2020 |
6. | costs incurred for the year to date on April 15 |
7. | profit recognized for the year to date on April 15 |
8. | the final entry to close the construction accounts on April 15, 2020 |
General Journal Instructions
All transactions on this page must be entered (except for post ref(s)) before you will receive Check My Work feedback.
PAGE 2019PAGE 2020
GENERAL JOURNAL
Score: 7/363
DATE | ACCOUNT TITLE | POST. REF. | DEBIT | CREDIT | |
---|---|---|---|---|---|
1 |
|||||
2 |
|||||
3 |
|||||
4 |
|||||
5 |
|||||
6 |
|||||
7 |
|||||
8 |
|||||
9 |
|||||
10 |
|||||
11 |
|||||
12 |
|||||
13 |
Points:
1.33 / 69
Feedback