On February 1, 2014, Miley Contractors agreed to construct a building at a contr
ID: 2493217 • Letter: O
Question
On February 1, 2014, Miley Contractors agreed to construct a building at a contract price of $5,000,000. Miley estimated total construction costs would be $4,000,000 and the project would be finished in 2015. Information relating to the costs and billings for this contract is as follows:
Total costs incurred to date
INSTRUCTIONS Complete journal entries for percentage-of-completion accounting for 2014, 2015, and 2016.
2014 2015 2016Total costs incurred to date
1,500,000 2,640,000 4,600,000 Estimated costs to complete 2,500,000 1,760,000 0 Customer billings to date 2,200,000 4,000,000 5,600,000 Collections to date 2,000,000 3,500,000 5,500,000Explanation / Answer
Working Notes: Computation of Revenue and profit to be recognised
journal entries
Year 2014
To record the cost incurred:
To record the amount billed:
To record the collections:
To record Revenue
Construction in progress $ 375,000
Construction expense $1,500,000
TO Construction revenue $ 1,875,000
Year 2015
To record the cost incurred:
To record the amount billed:
To record the collections:
Cash $ 1,800,000
Accounts receivable $ 1,800,000
To record Revenue
Construction in progress $ 360,000
Construction expense $ 2,640,000
TO Construction revenue $ 3,000,000
Year 2016
To record the cost incurred:
Work-in-progress
$4,600,000
TO Accounts payable and others
$4,600,000
To record the amount billed:
Accounts receivable $2,000,000
Billings $2,000,000
To record the collections:
Cash $ 1,600,000
Accounts receivable $1,600,000
To record Revenue
Construction in progress $ 400,000
Construction expense $ 4,600,000
TO Construction revenue $ 5,000,000
Particulars 2014 2015 2016 Costs incurred to date 1,500,000 2,640,000 4,600,000 Estimated costs to complete 2,500,000 1,760,000 - Total Cost 4,000,000 4,400,000 4,600,000 percentage-of-completion 37.50% 60.00% 100.00% (Costs incurred to date/Total cost Contract price 5,000,000 5,000,000 5,000,000 Revenue to be recognised 1,875,000 3,000,000 5,000,000 (Contract price*percentage-of-completion) Costs incurred to date 1,500,000 2,640,000 4,600,000 Profit or loss to be recognised(Cummulative) 375,000 360,000 400,000 Profit or loss to be recognised in each year 375,000 (15,000) 40,000