Question

ABC Construction has the following contract: Contract price 1,000,000 Cost incurred cost to complete Dec 31 2017 200,000 600,000 Dec 31 2018 350,000 250,000 Dec 31 2019 300,000 850,000 Billings Cash Received Dec 31 2017 250,000 200,000 Dec 31 2018 400,000 350,000 Dec 31 2019 350,000 450,000 1,000,000 1,000,000 A. Prepare a % of completion schedule for the three years B. Prepare journal entries for 3 years

Answer 1

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	Situation 1 - Percentage-of-Completion
		Year 2017	Year 2018	Year 2019
	Contract price	$               1,000,000	$ 1,000,000	$ 1,000,000
	Actual costs to date	$                  200,000	$     550,000	$     850,000
	Estimated costs to complete	$                  600,000	$     200,000	$               -
	Total estimated costs	$                  800,000	$     750,000	$     850,000
	Estimated gross profit
	(actual in 2019)	$                  200,000	$     250,000	$     150,000
	Gross profit (loss) recognized:			Gross Profit	Revenue
	Year 2018	$                  200,000
		$                  800,000	25.00%	$       50,000	$     250,000
	Year 2019	$                  550,000
		$                  750,000	73.33%	$     133,333	$     483,333
	Year 2020	%150,000-$183,333		$     -33,333	$     266,667
	Part 2a: 2017 Journal entries:
S No	Account	Debit	Credit
1	Construction in Progress	$                  200,000
	Various Accounts		$     200,000
	(record construction cost)
2	Accounts Receivable	$                  250,000
	Billing on construction contracts		$     250,000
	(record progress billing)
3	Cash	$                  200,000
	Accounts Receivable		$     200,000
	(record collection)
4	Construction in Progress	$                    50,000
	Cost of Construction	$                  200,000		Cost
	Revenue from long term contracts		$     250,000	Revenue recognized
	(record gross profit)
	Part 2b: 2018 Journal entries:
S No	Account	Debit	Credit
1	Construction in Progress	$                  350,000
	Various Accounts		$     350,000
	(record construction cost)
2	Accounts Receivable	$                  400,000
	Billing on construction contracts		$     400,000
	(record progress billing)
3	Cash	$                  350,000
	Accounts Receivable		$     350,000
	(record collection)
4	Construction in Progress	$                  133,333
	Cost of Construction	$                  350,000		Cost
	Revenue from long term contracts		$     483,333	Revenue recognized
	(record gross profit)
	Part 2c: 2019 Journal entries:
S No	Account	Debit	Credit
1	Construction in Progress	$                  300,000
	Various Accounts		$     300,000
	(record construction cost)
2	Accounts Receivable	$                  350,000
	Billing on construction contracts		$     350,000
	(record progress billing)
3	Cash	$                  450,000
	Accounts Receivable		$     450,000
	(record collection)
4	Construction in Progress		$       33,333
	Cost of Construction	$                  300,000		Cost
	Revenue from long term contracts		$     266,667	Revenue recognized
	(record gross profit)