On February 1, 2014, Miley Contractors agreed to construct a building at a contr

Question

On February 1, 2014, Miley Contractors agreed to construct a building at a contract price of $5,000,000. Miley estimated total construction costs would be $4,000,000 and the project would be finished in 2015. Information relating to the costs and billings for this contract is as follows:

Total costs incurred to date

INSTRUCTIONS Complete journal entries for percentage-of-completion accounting for 2014, 2015, and 2016.

2014 2015 2016

Total costs incurred to date

1,500,000 2,640,000 4,600,000 Estimated costs to complete 2,500,000 1,760,000 0 Customer billings to date 2,200,000 4,000,000 5,600,000 Collections to date 2,000,000 3,500,000 5,500,000

Explanation / Answer

Working Notes: Computation of Revenue and profit to be recognised

journal entries

Year 2014

To record the cost incurred:

To record the amount billed:

To record the collections:

To record Revenue

Construction in progress $ 375,000

Construction expense $1,500,000

TO Construction revenue $ 1,875,000

Year 2015

To record the cost incurred:

To record the amount billed:

To record the collections:

Cash                                $ 1,800,000

Accounts receivable             $ 1,800,000     

To record Revenue

Construction in progress   $ 360,000

Construction expense $ 2,640,000

TO Construction revenue $ 3,000,000

Year 2016

To record the cost incurred:

Work-in-progress

$4,600,000

TO Accounts payable and others

$4,600,000

To record the amount billed:

Accounts receivable           $2,000,000

                       Billings            $2,000,000

To record the collections:

Cash                                $ 1,600,000

Accounts receivable     $1,600,000   

To record Revenue

Construction in progress   $     400,000

Construction expense $ 4,600,000

TO Construction revenue $ 5,000,000

Particulars 2014 2015 2016 Costs incurred to date 1,500,000 2,640,000 4,600,000 Estimated costs to complete 2,500,000 1,760,000             -   Total Cost 4,000,000 4,400,000 4,600,000 percentage-of-completion 37.50% 60.00% 100.00% (Costs incurred to date/Total cost Contract price 5,000,000 5,000,000 5,000,000 Revenue to be recognised 1,875,000 3,000,000 5,000,000 (Contract price*percentage-of-completion) Costs incurred to date 1,500,000 2,640,000 4,600,000 Profit or loss to be recognised(Cummulative)     375,000     360,000     400,000 Profit or loss to be recognised in each year    375,000     (15,000)      40,000

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