Stoney Run Construction Company (U.S. GAAP) enters into a 3-year contract to bui
ID: 2329794 • 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:
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
2,800,000
Question 4:
Calculate the gross profit booked in Year 2:
Question 5:
Book the following journal entries for Year 2:
1-Record costs incurred
2-Record billings on contract
3-Record payments received
4-Record revenue/cost during construction period
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
2,800,000
Explanation / Answer
(4) Gross Profit booked in year 2 :-
Gross Profit upto date in 2nd year – Gross Profit booked in year 1
Gross Profit Booked in year 1 :-
% complete in year 1 = Cost incurred upto date / Total Estimated cost
= 400000/1600000 = 25%
Gross Profit = (Sale Price * % complete) – cost incurred upto date
= (2800000 * 25%) – 400000 = $300000
Gross Profit upto date in 2nd year:-
%age of completion in year 2 = Cost incurred upto date / Total Estimated cost
= 900000/2000000 = 45%
Gross Profit = (Sale Price * % complete) – cost incurred upto date
= (2800000 * 45%) – 900000 = $360000
Gross Profit booked in year 2 = 3600000 – 300000 = $60000
(5) Journal Entries in year 2 :-
(i) Record costs incurred :-
Construction in Process – Dr 500000
Account Payable - Cr 500000
(900000 – 400000 = 500000)
(ii) Record billings on contract:-
Account Receivable – Dr 900000
Billings - Cr 900000
(1150000 – 250000 = 900000)
(iii) Record payments received :-
Cash - Dr 760000
Account Receivable - Cr 760000
(950000 – 190000 = 760000)
(iv) Record revenue/cost during construction period:-
Construction in Process – Dr 60000
Construction Exp - Dr 500000
Construction Revenue - Cr 560000
[(2800000 * 45%) – (2800000 * 25%) = 560000]