04: 7marka) Beavis Construction Company was the low idder on a construction peoj
ID: 2514017 • Letter: 0
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04: 7marka) Beavis Construction Company was the low idder on a construction peojnct to hoild earthen dam for $1,500,000 The pect was begun in 2012 and complesed in 2013Cost and other data are presented below 212 203 Costs incured Juring the year $ 450,000 $1.100.000 Estimated oosts to coemple 1ase.soo Billings daring the year Cash collections daring the 400.00 1,400.000 300,000 1,500.000 Assume that Beav is wes the percenage-oF-cmltice method for neve gnition Required I Compute the amount of gross profis necognined daring 2012 and 2013 2. Prepare al journal entries nelated to the consicin pojct in 2012 and 2013 3 Prepare Sutement of Financial Piton of 2012 and 20 xf anExplanation / Answer
1. Computation of gross profit:-
Revenue from the project:- $ 1,800,000
Less: Estimated cost: ($ 1,550,000)
Profit on the project $ 250,000
Profit to be recognized in 2012 & 2013:-
Percentage of completion in 2012: $ 450,000/ $ 1,550,000 = 29%. Accordingly, 29% of the estimated profit need to be reconized during 2012 and remaing profit to be recoznised in 2013. Profit for 2012 = 72,500; profit for 2013 = 177,500.
2. Journal Enteries:-
In 2012:-
Accounts reveibale a/c Dr. 522,000 (1,800,000*29%)
To Sales/Service a/c 522,000
Expenses a/c 4,50,000
TO A/c payable 4,50,000
Bank A/c Dr. 3,00,000
To Accounts receivable 3,00,000
In 2013
Accounts receivable A/c Dr. 1,278,000
To Sales/Service A/c 1,278,000
Accounts payable to 1,100,000
To Expenses 1,100,000
Bank A/c Dr. 1,500,000
To Accounts Receivable 1,500,000
Accounts Payable Dr. 1,550,000
to Bank A/c 1,550,000
*Note: Assume that Accounts payable were settled at the end of the project
Even though the sum specifies certain amounts as billing done. As per percentage completion method, the revenue recognized to be the completed percent of the amount of project.
Amounts are not clearly visible in the picture and taken the amounts to the best visible. In case of any change in the amounts, as shown in the answer, you may substitute with correct numbers.
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