im\'s Construction Co. has a $75,000,000 contract to build a newfootball stadium

Question

im's Construction Co. has a $75,000,000 contract to build a newfootball stadium. The project began on January 1, 2016 with an expected completion date of October 31, 2018 The following table provides information gathered during the construction period Jim uses the percentage completion method to account for this contract 2016 2017 2018 Construction costs incurred during the ear Estimated costs to complete Billings during the year Cash collected during year 22,500,000 28,687,500 21,937,500 33,750,000 21,937,500 15,000,000 26,250,000 11,250,000 22,500,000 33,750,000 37,500,000 (1) Prepare journal entry to record gross profit for 2016 (2) Prepare all necessary journal entries for 2017 At end of 2016 and 2017, what are the balance of CLE 2016 2017 BB CIP Construction costs incurred during the year Gross Profit EB CIP g2017, the costs and estimation have changed according to the following table 2016 201 Construction costs incurred during the year Estimated costs to complete Billings during the year Cash collected during year 22,500,000 33,750,000 15,000,000 11,250,000 32,625,000 23,625,000 23,625,000 26,250,000 22,500,000 33,750,000 37,500,000 (4) Prepare journal entry to record gross profit for 2017 Show at end of 2017 and 2018, what are the balance af CIP costs

Explanation / Answer

1) To compute the %of completion, one divides the cost to date by the total cost.

Total cost to date = Cost Incurred /(Cost Incurred +Estimated cost)*100

=22500000/22500000+33750000 *100 = 40%

Estimated Gross Profit = Contract Price -Total Cost =75000000-56250000=18750000

Gross Profit for the year 2016 = Estimated Gross Profit *% of Completion = 18750000*40/100= 7500000.

Journal entry of Gross profit for year1

Construction in Process 7500000

To Construction Revenue 7500000

2) Journal entries for year 2017

i. Construction cost 28687500

To Cash 28687500

ii. Contracts Receivable 3750000

Cash 22500000

To Progress Billing 26250000

iii Construction in Process 875000

To Construction Revenue 875000

3.)Balances of CIP

4) Construction Revenue 3750000

To Construction In Process 3750000

2016 2017 BB CIP                            -      15,000,000.00 Cost incurred during the year    22,500,000.00    28,687,500.00 Gross Profit      7,500,000.00          875,000.00 EB CIP    15,000,000.00    42,812,500.00

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