McCombs Contractors received a contract to construct a mental health facility fo
ID: 2537114 • Letter: M
Question
McCombs Contractors received a contract to construct a mental health facility for $2,500. Construction was begun in 2017 and completed in 2018. Cost and other data are presented below:
2017 2018
Costs incurred during the year $1,500 $1,300
Estimated costs to complete 1,200 0
Billings during the year 1,200 1,300
Cash collections during the year 1,000 1,500
1.Compute the amount of revenue and gross profit recognized during 2017 and 2018.
2.Assume that McCombs recognizes revenue on this contract over time according to percentage of completion. Prepare all journal entries for 2017 and 2018 to record costs, billings, collections, profit (loss) recognition, and transferring of the asset when construction is complete. Round your answers to the nearest whole dollar.
3.Assume that McCombs recognizes revenue upon project completion according to the percentage of completion. Prepare all journal entries for 2017 and 2018 to record costs, billings, collections, and profit (loss) recognition, and transferring of the asset when construction is complete. Round your answers to the nearest whole dollar.
Explanation / Answer
Answer 1. Percentage of Completion Method 2017 2018 Cost Incurred each year (A) 1,500 1,300 Cost Incurred to date (B) 1,500 2,800 Estimated Costs © 1,200 - Total Estimated Costs (D = B + C) 2,700 2,800 % Completed (E = B / D) 55.56% 100.00% Revenue 1,389 1,111 Expenses 1,500 1,300 Gross Profit (111) (189) Answer 2. - Percentage of Completion Journal Entry Date Particulars Dr. Amt Cr. Amt. 2017 1 Construction In Progress 1,500 Cash 1,500 2 Accounts Receivable 1,200 Billings on Contract 1,200 3 Cash 1,000 Accounts Receivable 1,000 4 Construction Expense 1,500 Construction Revenue 1,389 Construction In Progress 111 2018 1 Construction In Progress 1,300 Cash 1,300 2 Accounts Receivable 1,300 Billings on Contract 1,300 3 Cash 1,500 Accounts Receivable 1,500 4 Construction Expense 1,300 Construction Revenue 1,111 Construction In Progress 189 5 Billings on Contract 2,500 Construction In Progress 2,500 Answer 3. - Completed Contract Method 2017 2018 Cost Incurred each year (A) 1,500 1,300 Cost Incurred to date (B) 1,500 2,800 Estimated Costs © 1,200 - Total Estimated Costs (D = B + C) 2,700 2,800 Revenue - 2,500 Expenses - 2,800 Gross Profit - (300) Journal Entry Date Particulars Dr. Amt Cr. Amt. 2017 1 Construction In Progress 1,500 Cash 1,500 2 Accounts Receivable 1,200 Billings on Contract 1,200 3 Cash 1,000 Accounts Receivable 1,000 2018 1 Construction In Progress 1,300 Cash 1,300 2 Accounts Receivable 1,300 Billings on Contract 1,300 3 Cash 1,500 Accounts Receivable 1,500 4 Construction Expense 2,800 Construction Revenue 2,500 Construction In Progress 300 5 Billings on Contract 2,500 Construction In Progress 2,500