Beavis Construction Company was the low bidder on a construction project to buil
ID: 2513156 • Letter: B
Question
Beavis Construction 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 2013
Costs incurred during the year $450,000 $ 1.100,000
Estimated costs to complete 1,050,000 0
Billings during the year 400,000 1,400,000
Cash collections during the year 300,000 1,500,000
Assume that Beavis uses the percentage- of- completion method for revenue recognition.
Required:
Compute the amount of gross profit recognized during 2012 and 2013.
Prepare all journal entries related to the construction project in 2012 and 2013.
Prepare Statement of Financial Position end of 2012 and 2013 (if any).
(please provide the answer step by step)
Explanation / Answer
2012:
$1800000
Contract price
450000
Actual costs to date
1050000
Estimated costs to complete
1500000
Total estimated project costs
Estimated total gross profit
300000
Percentage of completion: $450,000/ $1,500,000
30%
Gross profit recognized
$90000
2013:
Contract price
$1800000
Costs incurred:
2012
$450000
2013
1100000
Total cost
1550000
Total gross profit
250000
Recognized in 2012
90000
Recognized in 2013
$160000
General journal
Debit
Credit
2012:
Construction in progress
450000
Cash
450000
Accounts receivable
400000
Billings on construction contract
400000
Cash
300000
Accounts receivable
300000
Construction in progress
90000
Cost of construction
450000
Revenue from long-term contracts
540000
2013:
Construction in progress
1100000
Cash
1100000
Accounts receivable
1400000
Billings on construction contract
1400000
Cash
1500000
Accounts receivable
1500000
Construction in progress
160000
Cost of construction
1100000
Revenue from long-term contracts
1260000
Billings on construction contract
1800000
Construction in progress
1800000
2012:
$0
2013:
Contract price
$1800000
Costs incurred:
2012:
$450000
2013:
$1100000
Total costs
$1550000
Total gross profit
$250000
2012:
$1800000
Contract price
450000
Actual costs to date
1050000
Estimated costs to complete
1500000
Total estimated project costs
Estimated total gross profit
300000
Percentage of completion: $450,000/ $1,500,000
30%
Gross profit recognized
$90000
2013:
Contract price
$1800000
Costs incurred:
2012
$450000
2013
1100000
Total cost
1550000
Total gross profit
250000
Recognized in 2012
90000
Recognized in 2013
$160000