Brovo Construction Company uses the percentage-of-completion method of accountin

Question

Brovo Construction Company uses the percentage-of-completion method of accounting. In 2015, Brovo began work under a contract with a contract price of

$1,500,000. Other details follow:

2015

2016

Cost incurred during the year

$980,000

$1,375,000

Estimated Cost to complete, as of December 31

420,000

0

Billings to date

800,000

1,500,000

Collections to date

250,000

1,500,000

Prepare all required general journal entries for 2015. (Use 12/31/15 as transaction dates.)

General Journal:

Date

Accounts

Debit

Credit

2015

2016

Cost incurred during the year

$980,000

$1,375,000

Estimated Cost to complete, as of December 31

420,000

0

Explanation / Answer

Date Accounts Debit Credit December 31, 2015 Construction in Progress Inventory Account $     9,80,000 Cash $      9,80,000 (Being the cost of construction incurred during the year) December 31, 2015 Accounts Receivable account $     8,00,000 Construction in Progress Inventory Account $      8,00,000 (Being amount billed towards construction in progress) December 31, 2015 Cash $     2,50,000 Accounts Receivable account $      2,50,000 (Being actual amount received towards billing) December 31, 2015 Construction expense $     9,80,000 Construction in Progress Inventory Account $        70,000 Construction Revenue $    10,50,000 (Being Gross profit transferred to Construction in progress inventory account) Working Note 1 Percentage of completion = Cost incurred during the year / estimated total cost of completion $ 980,000 /$ 1,400,000 = 70.00% Working Note 2 Construction Revenue Total Revenue x Percentage of completion $ 1,500,000 x 70% $ 10,50,000

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