During 2014, Nilsen Company started a construction job with a contract price of
ID: 2481217 • Letter: D
Question
During 2014, Nilsen Company started a construction job with a contract price of $1,795,000. The job was completed in 2016. The following information is available. 2014 2015 2016
2014 2015 2016
Costs incurred to date $361,120 $787,670 $1,105,000
Estimated costs to complete 614,880 291,330 –0–
Billings to date 292,700 899,200 1,795,000
Collections to date 234,700 816,500 1,411,000
Compute the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used.
Prepare all necessary journal entries for 2015 (To record cost of of construction.) (To record progress billings.) (To record collections.) (To recognize revenue.)
Compute the amount of gross profit to be recognized each year, assuming the completed-contract method is used
Explanation / Answer
Computation of the amount of gross profit to be recognized each year assuming the percentage-of-completion method is used:
Prepare all necessary journal entries for 2015:
Computation of the amount of gross profit to be recognized each year assuming the completed-contract method is used:
2014 = $0
2015 = $0
2016 = $690,000
Gross Profit Recognized in:
Gross profit $1,795,000 - 1,105,000 = $690,000 (2016).
to complete 614,880 291,330 0 Total cost 976,000 1,079,000 1,105,000 Total estimated profit 819,000 716,000 690,000 Percentage completed to date = cost to date / total cost * 100 37% 73% 100% Total gross profit recognized = estimated profit * % of completion 303,030 522,680 690,000 Less: Gross profit recognize
in previous years - 303,030 522,680 Gross profit recognized
in current year 303,030 219,650 167,320
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