5. Winnie the Pooh Construction Co. signed a $200,000 contract to construct a ve

Question

5. Winnie the Pooh Construction Co. signed a $200,000 contract to construct a very small building for the State of Florida. The project will begin in 2017 and be completed in 2019 (Yes, they work very, very slowly!). Below are the details: 2017 2018 2019 Costs incurred during the year80,500 $79,700 $20,140 Estimated costs to complete 94 500 19800 Billings during the year Cash collections during the year 80,0 85,000 96,500 18,500 0 84,000 32,000 Winnie the Pooh Construction Co. recognizes revenue over time according to the percentage-of-completion method when accounting for long-term contracts. Required: a. Prepare all journal entries to record costs, billings, collections, and any profit recognition for Pooh's activities for 2017. b. Prepare all journal entries to record costs, billings, collections, and any profit recognition for Pooh's activities for 2018 c. Prepare all journal entries to record costs, billings, collections, and any profit recognition for Pooh's activities for 2019 d. Prepare the journal entry to close the construction accounts in 2019 e. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2017, 2018 and 2019.

Explanation / Answer

Answer: (a)

Working Notes:

Answer = 1,02,000

In the books of Pooh Constrcution Co Journal Entries during the year 2017 (Amount in $) Sl No Particulars L/F Debit Credit 1 Constrcution in Process A/c Dr 80,500 To Cash A/c 80,500 {Being cost of constrcution recorded} 2 Contracts Receivable A/c Dr 85,000 To Progress Billings A/c 85,000 {Being progress billings recorded} 3 Cash A/c Dr 80,000 To Contracts Receivable A/c 80,000 {Being cash collected during the year recorded} 4 Constrcution in Process A/c Dr 1,02,000 Constrcution Expense A/c Dr 80,500 To Construction Revenues A/c 1,82,500 {Being constrcution revenue recognised}

Working Notes:

To compute the percentage of completion, one divides the costs to date by the total estimated costs: percentage of completion = 80,500/94,500 Answer = 85% Of course, total estimated gross profit is merely the difference between the contract price less total estimated costs: Total estimated Gross Profit = 2,00,000 - 80,000 Answer = 1,20,000 Gross profit to date is computed multiplying the percent complete by the estimated gross profit: Gross Profit to Date = 85% * 1,20,000

Answer = 1,02,000

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