Beavis Construc tion Company was the low bidder on a construction project to bui
ID: 2508200 • Letter: B
Question
Beavis Construc tion Company was the low bidder on a construction project to build an earthen dam for $1,800,000. The project was begun in 2012 and completed in 2013. Cost and other data are presented below 2012 013 Costs incurred during the year S 450,000 S1.100,000 1050,000 Estimated costs to complete Billings during the year Cash collections during the ear Assu 00,000 400.000 00,000 500,000 me that Beavis uses the percent age-of-completion method for revenue recognition. Required: I Compute the amount of gross profit recognized dring 2012 and 20 2. Pre 3. Prepare pare all journal entries related to the construction project in 2012 and 2013. Statement of Financial Position end of 2012 and 2013(f any).Explanation / Answer
1. Compute the amount of gross profit recognised during 2012 and 2013
2012:
Contract price = $1,800,000
Actual costs to date = $450,000
Estimated costs to complete = $1,050,000
Total estimated project costs = $1,500,000
Estimated total gross proft = $300,000
Percentage oF completion = $450,000/$1,500,000 = 30%
Gross proft recognized = $300,000 * 30% = $90,000
2013:
Contract price = $1,800,000
Costs incurred =
2012: $450,000
2013: $1,100,000
Total cost = $1,550,000 ($450,000 + $1,100,000)
Total gross proft = $250,000 ($1,800,000 - $1,550,000)
Gross profit already recognized in 2012 = $90,000
Gross profit recognized in 2013 = $160,000 ($250,000 - $90,000)
2. Prepare all journal entries related to the construction project in 2012 and 2013.
2012:
(a) Construction in progress A/c Debit $450,000
To Cash or A/P A/c Credit $450,000
(b) Accounts receivable A/c Debit $400,000
To Billings on construction contract A/c Credit $400,000
(c) Cash A/c Debit $300,000
To, Accounts receivable A/c Credit $300,000
(d) Construction in progress A/c Debit $90,000
Cost of construction A/c Debit $450,000
To, Revenue from long-term contracts A/c Credit $540,000
2013:
(a) Construction in progress A/c Debit $1,100,000
To Cash or A/P A/c Credit $1,100,000
(b) Accounts receivable A/c Debit $1,400,000
To Billings on construction contract A/c Credit $1,400,000
(c) Cash A/c Debit $1,500,000
To Accounts receivable A/c Credit $1,500,000
(d) Construction in progress A/c Debit $160,000
Cost of construction A/c Debit $1,100,000
To Revenue from long-term contracts A/c Credit $1,260,000
(e) Billings on construction contract A.c Debit $1,800,000
To Construction in progress A/c Credit $1,800,000
3. Statement fo financial position end of 2012 and 2013.
2012:
Assets
Accounts Receivable = $100,000
Cost of construction = $450,000
Liabilities
Billing on Construction contract = $400,000
Cash (overdraft) = $150,000
2013:
Assets
Cost of construction = $1,550,000
Cash = $250,000
Liabilities
Construction in progress = $1,800,000