4. On April 13, 2016, the Pagano Construction Company entered into a three-year

Question

4. On April 13, 2016, the Pagano Construction Company entered into a three-year construction contract to build a mall for a price of $12,000,000. During 2016, costs of $3,000,000 were incurred with estimated costs of $6,000,000 yet to be incurred. Billings of $3,800,000 were sent and cash collected was $3,250,000. In 2017, costs incurred were $4,000,000 with remaining costs estimated to be $5,600,000. 2017 billings were $3,500,000 and $3,600,000 cash was collected. The project was completed in 2018 after additional costs of $5,800,000 were incurred. The company's fiscal year-end is December 31. Pagano recognizes revenue over time according to percentage of completion. Required: a. Calculate the amount of gross profit or loss to be recognized in each of the three years. b. Prepare journal entries for 2016 and 2017 to record the transactions described (credit Various accounts" for construction costs incurred). c. 2016 and 2017. Prepare a partial balance sheet to show the presentation of the project as of December 31

Explanation / Answer

ReqA. 2016 Cost incurred 3,000,000 Total estimated cost (3000,000+6000,000) 9,000,000 Contract price 12,000,000 Total Gross profit 3,000,000 % Percentage completion (3000,000/9000,000 *100) 33.33% Gross Profit receognized in Year 2016 (3000,000*33.33%) 1,000,000 Contract Expense during 2016 3,000,000 Conttract revenue 4,000,000 2017 Cost incurred 4,000,000 Total estimated cost (3000,000+4000,000+5600,000) 12,600,000 Contract price 12,000,000 Gross Profit -600,000 % Percentage completion (7000,000/12600,000 *100) 55.56% Gross loss to be recognized in 2017(600,000+1000,000) -1,600,000 Contract Expense during 2017 4,000,000 Conttract revenue 2,400,000 2018 Cost incurred 5,800,000 Total estimated cost 12,800,000 Contract price 12,000,000 Total gross Profit -800,000 % Percentage completion 100.00% Gross Lossto be recognized in 2018(800,000-600,000) -200,000 Contract Expense during 2018 5,800,000 Conttract revenue 5,600,000 Req B. Journal entries Dr IN $ Cr in $ 2016 Contract in process Dr 3,000,000 Acounts payable Cr.' 3,000,000 Accounts receivable Dr. 3,800,000 Progress Billing Cr. 3,800,000 Cash Account Dr. 3,250,000 Accounts receivable Cr 3,250,000 Contract Expense Dr. 3,000,000 Contract in process (with gross profit) 1,000,000 Contract Revenue Cr. 4,000,000 2017 Contract in process Dr 4,000,000 Acounts payable Cr.' 4,000,000 Accounst receivable Dr. 3,500,000 Progress Billing Cr. 3,500,000 Cash Account Dr. 3,600,000 Accounts receivable Cr 3,600,000 Contract Expense Dr. 4,000,000 Contract in process (with gross Loss) Cr. 1,600,000 Contract Revenue Cr. 2,400,000 BALANCE SHEET ITEMS IN 2016 Assets: Contract in process (3000,000+1000,000) 4,000,000 Less: Progress biling 3,800,000 200,000 Accounts receivable (3800,000-3250,000) 550,000 Liabilities: Accounts Payable 3,000,000 BALANCE SHEET ITEMS IN 2017 Assets: Contract in process (4000,000+4000,000-1600,000) 6,400,000 Less: Progress biling(3800,000+3500,000) 7,300,000 -900,000 Accounts receivable (550,000+3500,000-3600,000) 450,000 Liabilities: Accounts Payable 7,000,000

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.