Question

During 2017, Ivanhoe Company started a construction job with a contract price of $1,590,000. The job was completed in 2019. The following information is available.

		2017		2018		2019
Costs incurred to date		$366,300		$831,440		$1,067,000
Estimated costs to complete		623,700		262,560		–0–
Billings to date		297,000		894,000		1,590,000
Collections to date		270,000		816,000		1,417,000

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

Gross profit in 2017

Gross profit in 2018

Gross profit in 2019

b) Prepare all necessary journal entries for 2018.

Dr. Construction in Process

Cr. Materials, Cash, Payables

--

Dr. Accounts Receivable

Cr. Billings on Construction in Process

--

Dr. Cash

Cr. Accounts Receivable

--

Dr. Construction in Process

Dr. Construction Expense

Cr. Revenue from Long Term Contracts

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

2017

2018

2019

Answer 1

Ans.1
	Particulars		2017	2018	2019
	Contract price		1590000	1590000	1590000
	Costs:
	Cost to date		366300	831440	1067000
	Estimated costs to complete		623700	262560	0
	Total cost		990000	1094000	1067000
	Total estimated profit		600000	496000	523000
	Percentage completed to date		37%	76%	100%
	Total gross profit recognized		222000	376960	523000
	Less: Gross profit recongnize in last year		0	222000	376960
	Gross profit of current year		222000	154960	146040
	*Percentage completed to date = Cost to date / Total cost * 100
	*Total estmated profit = Contract price - Total cost
	*Total gross profit recognized = Total estimated profit * percentage completed to date
Ans.b	Particulars			Debit	Credit
	Dr. Construction in process			465140
	Cr. Materials, Cash, Payables				465140
	(831440 - 366300)
	Dr. Accounts Receivable			597000
	Cr. Billings on Construction in process				597000
	(894000 - 297000)
	Dr. Cash			546000
	Cr. Accounts Receivable				546000
	(816000 - 270000)
	Dr. Construction in process			465140
	Dr. Construction Expense			154960
	Cr. Revenue from Long term contracts				620100
	(1590000 * (76%-37%)
Ans.c	Gross Profit under completed contract method:
	2017	0
	2018	0
	2019	523000
	*Calculation:
	Contract price - Cost incurred to date
	1590000 - 1067000
	523000
	*The job/contract was completed in 2019 so the profit of previous two years is NIL under completed contract method.