In 2013, Westmoreland Construction Company was contracted to construct a highway
ID: 2500247 • Letter: I
Question
In 2013, Westmoreland Construction Company was contracted to construct a highway for St. Paul County for $10,000,000. The road was completed in 2015. Westmoreland uses the % of completion method for accounting for its contracts. The following information relates to the contract. The following represents information related to the contract:
2013
2014
2015
Costs incurred during the year
$2,400,000
$3,600,000
$2,200,000
Estimated costs to complete
5,600,000
2,000,000
-0-
Billings during the year
2,000,000
4,000,000
4,000,000
Cash collections during the year
1,800,000
3,600,000
4,600,000
Calculate the amount of estimated gross profit to be recognized in the years 2013-2015.
Prepare all the appropriate journal entries for 2013 only. These should also include the recording of billings, cash collections, etc. One of the PowerPoints that I used in class (PowerPoints are posted on Moodle) described what the accounting should be as well as gave an illustration of all the journal entries.
2013
2014
2015
Costs incurred during the year
$2,400,000
$3,600,000
$2,200,000
Estimated costs to complete
5,600,000
2,000,000
-0-
Billings during the year
2,000,000
4,000,000
4,000,000
Cash collections during the year
1,800,000
3,600,000
4,600,000
Explanation / Answer
Amount of estimated gross profit to be recognized in the years 2013-2015.
= consrtuction price - Cost incurred during the year(2013 to 2015)
= $10000000 - $(2400000 + 3600000 + 2200000)
= $10000000 - $8200000
= $1800000
Journal Entries for 2013 year:
1. Work in Progress Dr.$2400000
To Accounts Payable $2400000
(Being cost incurred recorded)
2. Accounts Recievable Dr. $2000000
To Service Income / Billing $2000000
(Being amount of bill recorded as service provided)
3. Cash Dr.$1800000
To Accounts Receivable $1800000
(Being Cash received as service income from Accounts Receivable)
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