Question

During 2020, Nash Company started a construction job with a contract price of $1,620,000. The job was completed in 2022. The following information is available.

		2020		2021		2022
Costs incurred to date		$444,400		$867,420		$1,060,000
Estimated costs to complete		565,600		230,580		–0–
Billings to date		301,000		904,000		1,620,000
Collections to date		272,000		814,000		1,411,000

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

List of Accounts

  

  

Question Part Score

--/9

Prepare all necessary journal entries for 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. For costs incurred use account Materials, Cash, Payables.)

Account Titles and Explanation	Debit	Credit
enter an account title to record cost of construction	enter a debit amount	enter a credit amount
enter an account title to record cost of construction	enter a debit amount	enter a credit amount
(To record cost of construction.)
enter an account title to record progress billings	enter a debit amount	enter a credit amount
enter an account title to record progress billings	enter a debit amount	enter a credit amount
(To record progress billings.)
enter an account title to record collections	enter a debit amount	enter a credit amount
enter an account title to record collections	enter a debit amount	enter a credit amount
(To record collections.)
enter an account title to recognize revenue	enter a debit amount	enter a credit amount
enter an account title to recognize revenue	enter a debit amount	enter a credit amount
enter an account title to recognize revenue	enter a debit amount	enter a credit amount
(To recognize revenue.)

List of Accounts

  

  

Question Part Score

--/6

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

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

Answer 1

Formula of Gross profit Recognized :-

= (Contract Value * % of Contract Complete) - Cost incurred to Date

% of Contract Complete = (Costs Incurred to Date/(Costs Incurred to Date+Estimated Costs to Complete))

Gross Profit Recognized in 2020 :-

= ($1620000 * 44%) - $444400

= $712800 - $444400

= $268400

% of Contract Complete = ($444400/($444400+$565600)) = 44%

Gross Profit Recognized in 2021 :-

= ($1620000 * 79%) - $867420

= $1279800 - $867420

= $412380

% of Contract Complete = ($867420/($867420+$230580)) = 79%

Gross Profit Recognized in 2022 :-

= ($1620000 * 100%) - $1060000

= $1620000 - $1060000

= $560000

% of Contract Complete = ($1060000/($1060000+$0)) = 100%

Journal Entries :-

Particulars	Debit($)	Credit($)
Construction in Process A/c ($867420-$444400)	423020
Materials A/c		423020
(To record cost of Construction)
Accounts Receivable A/c	603000
Billing on Construction A/c ($904000-$301000)		603000
(To record Progress Billings)
Cash A/c ($814000-$272000)	542000
Accounts Receivable A/c		542000
(To Record Collections)
Construction Expenses A/c	423020
Construction in Process A/c	412380
Revenue from Long term Contract A/c		835400
(To Recognize Revenue)

Calculation of Gross Profit Recognize each year :-

Particulars	2020	2021	2022
Gross Profit	$0	$0	($1620000-$1060000) = $560000