Bravo Construction Company uses the percentage-of-completion method of accountin
ID: 2484241 • Letter: B
Question
Bravo Construction Company uses the percentage-of-completion method of accounting. In 2015, Brovo began work under a contract with a contract price of $1,500,000. Other details follow:
2015
2016
Cost Incurred during the year
$980,000
$1,375,000
Estimated Cost to complete, as of December 31
420,000
0
Billings to date
800,000
1,500,000
Collections to date
250,000
1,500,000
Prepare all required general journal entries for 2015. (Use 12/31/15 as transaction dates.)
2015
2016
Cost Incurred during the year
$980,000
$1,375,000
Estimated Cost to complete, as of December 31
420,000
0
Billings to date
800,000
1,500,000
Collections to date
250,000
1,500,000
Explanation / Answer
Account title and explanation
Debit
Credit
1
Construction in process
$ 980,000.00
Materials, Cash, Payables, etc
$ 980,000.00
2
Accounts receivable
$ 80,000.00
Billings on Construction in process
$ 80,000.00
3
Cash
$ 250,000.00
Accounts receivables
$ 250,000.00
4
Construction in process
$ 70,000.00
Construction expenses
$ 980,000.00
Revenue from long term contracts (note 1)
$ 1,050,000.00
Note 1 :
Cost incurred = $980,000
Expected cost to complete = $420,000
Total expected cost of the project = $980,000 + $420,000 = $1,400,000
Percentage of work completed = Cost incurred/Total expected cost = $980,000/$1,400,000 = 70%
Revenue to be recognised = Contract price * Percentage of completion = $1,500,000 * 70% = $1,050,000
Account title and explanation
Debit
Credit
1
Construction in process
$ 980,000.00
Materials, Cash, Payables, etc
$ 980,000.00
2
Accounts receivable
$ 80,000.00
Billings on Construction in process
$ 80,000.00
3
Cash
$ 250,000.00
Accounts receivables
$ 250,000.00
4
Construction in process
$ 70,000.00
Construction expenses
$ 980,000.00
Revenue from long term contracts (note 1)
$ 1,050,000.00