Question

Sarasota, Inc. began work on a $6,504,000 contract in 2020 to construct an office building. During 2020, Sarasota, Inc. incurred costs of $1,639,900, billed its customers for $1,300,000, and collected $1,055,000. At December 31, 2020, the estimated additional costs to complete the project total $3,650,100. Prepare Sarasota’s 2020 journal entries using the percentage-of-completion method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For costs incurred use account Materials, Cash, Payables. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Answer 1

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Sarasota, Inc.	Calculation of Gross Profit
Particulars	2020
Contract Price	6,504,000	A
Cost Incurred during the year	1,639,900	B
Estimated cost to complete	3,650,100	C
Cost Incurred to date	1,639,900	D
(Sum total of the cost incurred during the year)
Estimated total cost	5,290,000	E=C+D
Percentage complete	31.00%	F=D/E
(Cost Incurred to date/Estimated total cost)
Revenue to be recognized	2,016,240	G
(Contract Price*Percentage complete)- revenue previously recognized
Year 2020: 31% completed. Revenue recognized = 31% x $ 6,504,000 = $ 2,016,240.
Gross Profit/(Loss)	376,340.00	H=G-B
Billings during the year	1,300,000.00
Collection during the year	1,055,000.00

Ans to 2	Journal Entries	2020
Costs Incurred	CIP (Work-in-progress) Dr.	1,639,900
	Cash Cr.	1,639,900
Billing	Accounts Receivable Dr.	1,300,000
	Billing on CIP Cr.	1,300,000
Receiving Payments	Cash Dr.	1,055,000
	Accounts Receivable Cr.	1,055,000
Period end adjustments for Revenue	Construction Expense Dr.	1,639,900
	CIP (Work-in-progress) Dr.	376,340
	Construction Revenue Cr.	2,016,240