Question

On June 1, 2020, Roman Construction Company Inc. contracted to build an office building for Sicily...

  1. On June 1, 2020, Roman Construction Company Inc. contracted to build an office building for Sicily Corp. for a total contract price of $2,600,000. On July 1, Roman estimated that it would take between 2 and 3 years to complete the building. On December 31, 2022, the building was substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Sicily 2020, 2021, and 2022.
2020 2021 2022
Costs incurred to date $600,000 $1,500,000 $2,750,000
Estimated costs to complete $1,800,000 $1,200,000 0
Billings $400,000 $1,200,000 $2,400,000

a. Assume RCC uses the percentage-of-completion method. Record journal entries for RCC for this contract over the years 2020-2022.

b. Record the journal entries for RCC for this contract over the years 2020-2022 if the company used the completed-contract method.

Homework Answers

Answer #1
a Percentage of completion method
Year
2020 Percentage of completion method
= Cost incurred / (cost incurred + Estimated cost would be incurred)
= 600000 / 2400000
= 0.25
25% of work has been completed
Journal entries
Contract value = 2,600,000
Recognition of revenue = 650,000
Particulars Dr (Amount) Cr (Amount)
Silcily Corp Account 400,000
Work Uncertified 250000
To Contract revenue 650,000
Expenses Account 600000
To Bank 600000
2021 Percentage of completion method
= 1500000 / 2700000
= 0.56
Contract value = 2,600,000
Recognition of revenue = 1,444,444
Particulars Dr (Amount) Cr (Amount)
Silcily Corp Account 800,000
To Contract revenue 794,444
To Work Uncertified 5,556
Expenses Account 900000
To Bank 900000
2022 Percentage of completion method
= 2750000 / 2750000
= 1.00
100% of work has been completed
Silcily Corp Account 1,200,000
Work Uncertified 200,000
To Contract revenue 1,400,000
Expenses Account 1250000
To Bank 1250000
b Completion method
Year Particulars Dr (Amount) Cr (Amount)
2020 Unexpired expenses Account 600000
To Bank 600000
Siclicy 400000
To Work Uncertified 400000
2021 Unexpired expenses Account 900000
To Bank 900000
Siclicy 800000
To Work Uncertified 800000
2022 Unexpired expenses Account 1250000
To Bank 1250000
Siclicy 1200000
To Work Uncertified 1200000
Expenses Account 2750000
To Unexpired expenses Account 2750000
Work Uncertified 2600000
To Contract revenue 2600000
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