The R.H.White Construction Company was contracted on July 1, 2014 to build a mus
ID: 2500548 • Letter: T
Question
The R.H.White Construction Company was contracted on July 1, 2014 to build a music hall. It was estimated that the music hall will cost $6,000,000 and will take 3 years to complete. The contract price was $7,800,000. The following information relates to project during the construction period.
2014
2015
2016
Costs to date
$2,000,000
$4,060,000
$6,200,000
Estimated costs to complete
4,000,000
1,740,000
-0-
Progress billings to date
1,200,000
4,800,000
7,800,000
Cash collected to date
900,000
4,200,000
7,680,000
REQUIREMENTS:
Using the % of completion method, compute the estimated gross profit recognized in the years 2014-2016.
Prepare all the appropriate journal entries for 2014 only. These should also include the recording of progress billings to date, cash collections, etc. One of the PowerPoints that I used in class described what the Accounting was as well as gave an illustration of what the journal entries might be.
2014
2015
2016
Costs to date
$2,000,000
$4,060,000
$6,200,000
Estimated costs to complete
4,000,000
1,740,000
-0-
Progress billings to date
1,200,000
4,800,000
7,800,000
Cash collected to date
900,000
4,200,000
7,680,000
Explanation / Answer
Year 2014:
Percentage completion
= (cost to date / estimated cost of completion of the contract)
= 2000000 / 6000000 = 33.33 %
Percentage of revenue to be recognised to date
= percentage completion x contract price
= $ 7800000 x 33.33%
= $2600000
Current period revenue =
= Revenue to be recognized to date – Revenue recognized in prior periods
= $26000000 - 0
= $2600000
Gross profit to be recognised to date
= Revenue recognised to date – Cost recognised to date
= $ 2600000 - $ 2000000
= $ 600000
Current period gross profit to be recognised
= Gross profit recognised to date - Recognised in prior years
= $ 600000 - $0
= $600000
Year 2015:
Percentage completion
= (cost to date / estimated cost of completion of the contract)
= 4060000 / 6000000 = 67.67 %
Percentage of revenue to be recognised to date
= percentage completion x contract price
= $ 7800000 x 67.67%
= $5278000
Current period revenue =
= Revenue to be recognized to date – Revenue recognized in prior periods
= $5278000 - $2600000
= $2678000
Gross profit to be recognised to date
= Revenue recognised to date – Cost recognised to date
= $ 5278000 - $ 4060000
= $ 1218000
Current period gross profit to be recognised
= Gross profit recognised to date - Recognised in prior years
= $1218000 - $ 600000
= $618000
Year 2015:
Percentage completion
= 100 %
Percentage of revenue to be recognised to date
=$7800000
Current period revenue =
= Revenue to be recognized to date – Revenue recognized in prior periods
= $ 7800000 - $ 5278000
= $2522000
Gross profit to be recognised to date
= Revenue recognised to date – Cost recognised to date
= $ 7800000 - $ 6200000
= $ 1600000
Current period gross profit to be recognised
= Gross profit recognised to date - Recognised in prior years
= $1600000 - $ 1218000
= $382000
Account title and explanation debit($) credit($) Year 2014 construction in process 2000000 Accounts payables 2000000 (to record cost of construction) Accounts receivable 1200000 Billing on Contracts 1200000 (to record the billing made) cash account 900000 accounts receivable 900000 (to record cash received) construction in process 600000 cost of construction 2000000 construction revenue 2600000 (to recognise revenue and gross profit) Year 2015 construction in process 2060000 Accounts payables 2060000 (to record cost of construction) Accounts receivable 3600000 Billing on Contracts 3600000 (to record the billing made) cash account 3300000 accounts receivable 3300000 (to record cash received) construction in process 618000 cost of construction 2060000 construction revenue 2678000 (to recognise revenue and gross profit) Year 2016 construction in process 2140000 Accounts payables 2140000 (to record cost of construction) Accounts receivable 3000000 Billing on Contracts 3000000 (to record the billing made) cash account 3480000 accounts receivable 3480000 (to record cash received) construction in process 382000 cost of construction 2140000 construction revenue 2522000 (to recognise revenue and gross profit) Billing on contracts 7800000 construction in process 7800000 (to record completion of contract)Related Questions
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