Stoney Run Construction Company (U.S. GAAP) enters into a 3-year contract to bui
ID: 2329643 • Letter: S
Question
Stoney Run Construction Company (U.S. GAAP) enters into a 3-year contract to build a new warehouse facility. Information for Years 1, 2, and 3 is shown below:
COST RECOVERY METHOD (IFRS)
Question 1: Calculate the Gross Profit booked in Year 1:
Question 2: Book the following Journal Entries for Year 1:
1-Record Sale
2-Record payments received
Question 3: Book the following journal entries for Year 3:
1-Record payments received
2-Record gross profit
Year 1 Year 2 Year 3 Sale price $2,800,000 $2,800,000 $2,800,000 Estimated costs 1,600,000 2,000,000 2,000,000 Costs incurred to date (paid in cash) 400,000 900,000 2,000,000 Billed to date 250,000 1,150,000 2,800,000 Received in cash to date 190,000 950,000 2,800,000Explanation / Answer
Answer
Working
Year 1
Year 2
Year 3
A
Contract Price
$ 2,800,000.00
$ 2,800,000.00
$ 2,800,000.00
B
Cost Incurred to Date
$ 400,000.00
$ 900,000.00
$ 2,000,000.00
C
Estimated cost yet to be incurred to complete the contract
$ 1,200,000.00
$ 1,100,000.00
$ -
D = B+C
Total Cost
$ 1,600,000.00
$ 2,000,000.00
$ 2,000,000.00
E = (D/B) x 100
% of Completion
25%
45%
100%
F = A x E
Revenue to date
$ 700,000.00
$ 1,260,000.00
$ 2,800,000.00
G
Revenue of Previous year
$ -
$ 700,000.00
$ 1,260,000.00
H = F - G
Net Revenue this year
$ 700,000.00
$ 560,000.00
$ 1,540,000.00
I (=B)
Cost to date
$ 400,000.00
$ 900,000.00
$ 2,000,000.00
J
Cost to date of previous year
$ -
$ 400,000.00
$ 900,000.00
K = I - J
Net Cost for the year
$ 400,000.00
$ 500,000.00
$ 1,100,000.00
L = H - K
Gross Profits
$ 300,000.00
$ 60,000.00
$ 440,000.00
Answer: Gross Profit Year 1 = $ 300,000 [calculated above]
Date
Accounts title
Debit
Credit
Accounts receivables
$ 250,000.00
Billing on Construction contracts
$ 250,000.00
(amount billed during the year)
Date
Accounts title
Debit
Credit
Cash
$ 190,000.00
Accounts receivables
$ 190,000.00
(cash received)
Date
Accounts title
Debit
Credit
Cash
$ 1,850,000.00
Accounts receivables
$ 1,850,000.00
(cash received)
Date
Accounts title
Debit
Credit
Construction in Progress
$ 440,000.00
Construction expenses
$ 1,100,000.00
Construction Revenue
$ 1,540,000.00
(revenue recognised)
Working
Year 1
Year 2
Year 3
A
Contract Price
$ 2,800,000.00
$ 2,800,000.00
$ 2,800,000.00
B
Cost Incurred to Date
$ 400,000.00
$ 900,000.00
$ 2,000,000.00
C
Estimated cost yet to be incurred to complete the contract
$ 1,200,000.00
$ 1,100,000.00
$ -
D = B+C
Total Cost
$ 1,600,000.00
$ 2,000,000.00
$ 2,000,000.00
E = (D/B) x 100
% of Completion
25%
45%
100%
F = A x E
Revenue to date
$ 700,000.00
$ 1,260,000.00
$ 2,800,000.00
G
Revenue of Previous year
$ -
$ 700,000.00
$ 1,260,000.00
H = F - G
Net Revenue this year
$ 700,000.00
$ 560,000.00
$ 1,540,000.00
I (=B)
Cost to date
$ 400,000.00
$ 900,000.00
$ 2,000,000.00
J
Cost to date of previous year
$ -
$ 400,000.00
$ 900,000.00
K = I - J
Net Cost for the year
$ 400,000.00
$ 500,000.00
$ 1,100,000.00
L = H - K
Gross Profits
$ 300,000.00
$ 60,000.00
$ 440,000.00