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Percentage-of-completion method. Arshdeep Builders contracted to build a high-rise for $35,000,000. Construction began in 2018 and...

Percentage-of-completion method.

Arshdeep Builders contracted to build a high-rise for $35,000,000. Construction began in 2018 and is
expected to be completed in 2020. Data for 2018 and 2019 are:
Costs incurred to date Estimated costs to complete
Arshdeep uses the percentage-of-completion method.
Instructions
2018 $4,500,000 18,000,000
2019 $13,000,000
12,000,000
(a) How much gross profit should be reported for 2018? Show your computation.
(b) How much gross profit should be reported for 2019?
(c) Make the journal entry to record the revenue and gross profit for 2019.
Business   Accounting   
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Answer #1

Ans.

Revenue to be recognised= (Contracted revenue*Cost incurred till date/Total estimated cost)- Revenue recognised earlier

Gross profit= Revenue recognised- Cost incurred in year

1.For2018

Revenueto be recognised= (35000000*4500000/22500000)-0=7000000

Gross profit=7000000-4500000=2500000

2. For 2019

Revenue to be recognised= (35000000*13000000/25000000)-7000000=11200000

Gross profit=11200000-8500000=2700000

3. Journal

Account receivables. Dr. 11200000

Contract Revenue. 11200000

(Revenue recognised)

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