During 2014, Nilsen Company started a construction job with a contract price of

Question

During 2014, Nilsen Company started a construction job with a contract price of $1,696,000. The job was completed in 2016. The following information is available.

Instructions:

A) Compute the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used.

B) Prepare all necessary journal entries for 2015, assuming all costs are on account.

C) Compute the amount of gross profit to be recognized each year, assuming the completed-contract method is used.

2014 2015 2016 Costs incurred to date $424,000 $874,500 $1,134,200 Estimated costs to complete 636,000 291,500 –0– Billings to date 318,000 954,000 1,696,000 Collections to date 286,200 858,600 1,510,500

Explanation / Answer

(A) Percentage of Completion Method

Total Cost= Cost incurred till date+Estimated cost to complete

  

Journal entries for 2015 are as under

(C) In Completed Contract Method No Gross profit is recognised in the intermediate years and Full Profit is recognised whent the contract is complete so in the year 2014 & 2015 No Gross profit will be recognised. In 2016 the Gross profit will be as under.

Total Revenue $1,696,000- Total Cost incurred $11,34,200

Gross Profit under Completed contract Method= $561,800

2014 2015 2016 Cost Incurred to date (A) $424,000 $874,500 $11,34,200 Estimated Costs to Complete(B) $636,000 $291,500 0 Total Estimated Cost(C) $1,060,000 $1,166,000 $1,134,200 % Complete (A/C) 40% 75%$ 100% Estimated Revenue(D) $1,696,000 $1,696,000 $1,696,000 Gross Profit-E (D-A) $636,000 530,000 561,800 Gross Profit On % of Completion $254,400 397,500 561,800 Gross Profit recognised in earlier years 0 254,400 397,500 Gross Profit of the year 254,400 143,100 164,300

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