aves Construction began a construction project in 2016. The contract price was $

Question

aves Construction began a construction project in 2016. The contract price was $1,250 ts were $1,000,000. Data for each year of the contract are as follows: x Mayes 2016 2017 2018 incurred during the year 150,000 $700,000 187,500 Estimated costs to complete Process bilings during the year 850,000 375,000 212,50O 500,000 469,00O 375,000O 593,500 Cash collected during the year 187,500 Required: Use the percentage-of-completion method of reve evenue and gross profit for 2016 and 2017. Foll nue recognition to compute Also, prepare journal entries for the 2016 and 2017 ow the format used in your book and in your class.

Explanation / Answer

Computation of Revenue and Gross Profit:

Particulars

2016

2017

Cost incurred during the year

150000

700000

Estimated costs to complete

850000

212500

Cost incurred till date (a)

150000

150000 + 700000 = 850000

Estimated total costs to complete (b)

150000+850000 = 1000000

850000 + 212500 = 1062500

Percentage of Completion (%) = a/b

(150000/1000000) *100 = 15%

(850000/1062500) *100 = 80%

Revenue recorded till date

(Total revenue * Percentage of Completion)

1250000*15% = 187500

1250000*80% = 1000000

Revenue recorded during the financial year

(Total revenue till date – Revenue already recorded)

187500 – 0 = 187500

1000000 – 187500 = 812500

Gross Profit

(Revenue recorded during the financial year – cost incurred during the year)

187500 – 150000 = 37500

812500 – 700000 = 112500

Journal Entries:

Sl No.

Particulars

2016

2017

Debit

Credit

Debit

Credit

1)

Construction in Process

150000

700000

Cash

150000

700000

2)

Contract Receivable

375000

500000

Progress Billings

375000

500000

3)

Construction in Process

37500

112500

Construction expenses

150000

700000

Construction revenue

187500

812500

4)

Cash

187500

469000

Contract Receivable

187500

469000

Particulars

2016

2017

Cost incurred during the year

150000

700000

Estimated costs to complete

850000

212500

Cost incurred till date (a)

150000

150000 + 700000 = 850000

Estimated total costs to complete (b)

150000+850000 = 1000000

850000 + 212500 = 1062500

Percentage of Completion (%) = a/b

(150000/1000000) *100 = 15%

(850000/1062500) *100 = 80%

Revenue recorded till date

(Total revenue * Percentage of Completion)

1250000*15% = 187500

1250000*80% = 1000000

Revenue recorded during the financial year

(Total revenue till date – Revenue already recorded)

187500 – 0 = 187500

1000000 – 187500 = 812500

Gross Profit

(Revenue recorded during the financial year – cost incurred during the year)

187500 – 150000 = 37500

812500 – 700000 = 112500

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