Dixon Construction Company was awarded a contract to construct an interchange at

Question

Dixon Construction Company was awarded a contract to construct an interchange at the junction of U.S. 94 and Highway 30 at a total contract price of $11,600,000. The estimated total costs to complete the project were $8,600,000. Make the entry to record construction costs of $4,816,000, on construction in process to date. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Make the entry to record progress billings of $2,960,000. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit Make the entry to recognize the profit that can be recognized to date, on a percentage-of-completion basis. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Explanation / Answer

Year 1 cost

Construction in progress Dr 4816000

Accounts payable or Cash Cr 4816000

( To record construction cost till date)

Contracts receivables Dr 2960000

Progress Billings Cr 2960000

( To record billing in the 1st year)

To calculate gross profit that can be recognised till date on percentage of completion method is

percentage of completion = Cost incurred till date / Total estimated cost * 100

   = 4816000/8600000*100

   = 56%

estimated gross profit = contract price - estimated total cost

= 11600000 - 8600000

= 3000000

Hence gross profit for the year = 3000000 * 56%

= 1680000

journal entry to record gross profit is

Construction in progress Dr 1680000

Construction expenses Dr 4816000

Construction Revenues Cr 6496000

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