Pensacola Building Co. signed a contract to build a road over a period of three
ID: 2599018 • Letter: P
Question
Pensacola Building Co. signed a contract to build a road over a period of three years for a price of $600,000. Information relating to the performance of the contract in the first two years is summarized below: 2016 2017 Construction costs incurred during the year $110,000 $226,000 Estimated costs to complete 330,000 224,000 Billings during the year (all collected in cash) 100,000 290,000a. Prepare the journal entries for 2016 and 2017, assuming that the company uses the percentage of completion method. b. How would the journal entries change if the company used the completed contract method?
Pensacola Building Co. signed a contract to build a road over a period of three years for a price of $600,000. Information relating to the performance of the contract in the first two years is summarized below: 2016 2017 Construction costs incurred during the year $110,000 $226,000 Estimated costs to complete 330,000 224,000 Billings during the year (all collected in cash) 100,000 290,000
a. Prepare the journal entries for 2016 and 2017, assuming that the company uses the percentage of completion method. b. How would the journal entries change if the company used the completed contract method?
Pensacola Building Co. signed a contract to build a road over a period of three years for a price of $600,000. Information relating to the performance of the contract in the first two years is summarized below: 2016 2017 Construction costs incurred during the year $110,000 $226,000 Estimated costs to complete 330,000 224,000 Billings during the year (all collected in cash) 100,000 290,000
a. Prepare the journal entries for 2016 and 2017, assuming that the company uses the percentage of completion method. b. How would the journal entries change if the company used the completed contract method?
Explanation / Answer
.a Percentage Completion Method
Percentage Completed=cost incurred /Estimated total cost
Estimated total cost at end of year 2016=110000+330000=$440,000
Percentage completion during the year 2016=110000/440000=0.25=25%
Revenue recognized in the year 2016=0.25*600000=$150,000
Income recognized in 2016=(Revenue recognized-expenses)
Income recognized in 2016=(150000-110000)=$40,000
JOURNAL ENTRY
YEAR 2016
Account
Debit
Credit
Construction in progress
$110,000
Accounts payable
$110,000
Construction in progress
$40,000
Construction Expenses
$110,000
Construction Revenue
$150,000
Accounts Receivable
$100,000
Billings on contract
$100,000
Cash
$100,000
Accounts Receivale
$100,000
Estimated total cost at end of year 2017=110000+226000+224000=$560,000
Percentage completion during at the end of year 2017=(110000+226000)/560000=0.6=60%
Total revenue recognized at end of 2017=0.60*600000=$360,000
Total Income recognized at the end of the year 2017=(360000-110000-226000)=-$24,000
Adjustment=Total amount till 2017-amount in 2016
Revenue recognized in 2017=360000-150000=$210,000
Income recognized in 2017=24000-40000=-$16,000
JOURNAL ENTRY
YEAR 2017
Account
Debit
Credit
Construction in progress
$226,000
Accounts payable
$226,000
Construction Expenses
$226,000
Construction Revenue
$210,000
Construction in progress
$16,000
Accounts Receivable
$290,000
Billings on contract
$290,000
Cash
$290,000
Accounts Receivale
$290,000
.b Completed Contract Method:
JOURNAL ENTRY
YEAR 2016
Account
Debit
Credit
Work in progress
$110,000
Accounts payable
$110,000
Account Receivable
$100,000
Billimgs
$100,000
Cash
$100,000
Accounts receivable
$100,000
JOURNAL ENTRY
YEAR 2017
Account
Debit
Credit
Work in progress
$226,000
Accounts payable
$226,000
Account Receivable
$290,000
Billimgs
$290,000
Cash
$290,000
Accounts receivable
$290,000
JOURNAL ENTRY
YEAR 2016
Account
Debit
Credit
Construction in progress
$110,000
Accounts payable
$110,000
Construction in progress
$40,000
Construction Expenses
$110,000
Construction Revenue
$150,000
Accounts Receivable
$100,000
Billings on contract
$100,000
Cash
$100,000
Accounts Receivale
$100,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.