Probies IlI Milan, lnc. began work in 2016 on a contract for $22,000.000 Oher da
ID: 2579227 • Letter: P
Question
Probies IlI Milan, lnc. began work in 2016 on a contract for $22,000.000 Oher data are as folows 20162017 9,000,000 $14,000,000 Costs incured to date 6,000,000 Estimated costs to complete 000,000 22.000.000 Billings to da Fäll in the correet amounts on the following schedule. For percentage-of completion accounting and for completed-contract accounting, show the gross pvorit that should be recorded for 2016, and 2017 a Gross Prodit hon Completsd-Contract Gross Profit 2016 2017 2016 2017 2. Prepared all the necessary journal entries for 2016 and 2017 for the percentage-of- completion accounting and for completed-contract accountingExplanation / Answer
1. Percentage completion method.
2016:
Total Contract Value = $22,000,000
Total Estimates costs = $9,000,000 + 6,000,000 = 15,000,000
Percentage of work completed on the basis of cost = 9,000,000 / 15,000,000 = 60%
Revenue to be recognized in books = $22,000,000 x 60% = $13,200,000
Gross Profit in books for 2016 = $13,200,000 - 9,000,000 = $4,200,000
2017:
Total Contract Value = $22,000,000
Total costs = $14,000,000
Percentage of work completed on the basis of cost = 100%
Overall Profits = $22,000,000 - 14,000,000 = $8,000,000
Profit to be booked in 2017 = $8,000,000 - $4,200,000 = $3,800,000
2. Completed Contract method- Profit is booked only when the project is completed.
2016:
Under completed contract method, profit is booked only when the project is completed. Therefore, in year 2016 no profit will be booked.
Gross Profit = 0
2017:
Gross Profit = $22,000,000 - $14,000,000 = $8,000,000
Journal Entries under Percentage completion method
Date
Particulars
Dr. Amount
Cr. Amount
2016
Construction in Progress
TO Accounts Payable
9,000,000
9,000,000
2016
Construction in Progress
Expenses
TO Revenue Account
(Being revenue booked along with expense and CIP account)
4,200,000
9,000,000
13,200,000
2016
Accounts Receivable
TO Billings on CIP
(Being amount billed to customer)
9,000,000
9,000,000
2016
Cash
To Accounts Receivable
5,000,000
5,000,000
Date
Particulars
Dr. Amount
Cr. Amount
2017
Construction in Progress
TO Accounts Payable
5,000,000
5,000,000
2017
Construction in Progress
Expenses
TO Revenue Account
3,800,000
5,000,000
8,800,000
2017
Accounts Receivable
TO Billings on CIP
(Being amount billed to customer)
13,000,000
13,000,000
2017
Cash
To Accounts Receivable
13,000,000
13,000,000
Date
Particulars
Dr. Amount
Cr. Amount
2016
Construction in Progress
TO Accounts Payable
9,000,000
9,000,000
2016
Construction in Progress
Expenses
TO Revenue Account
(Being revenue booked along with expense and CIP account)
4,200,000
9,000,000
13,200,000
2016
Accounts Receivable
TO Billings on CIP
(Being amount billed to customer)
9,000,000
9,000,000
2016
Cash
To Accounts Receivable
5,000,000
5,000,000
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