Question

In February 2020, Sandhill Construction signed a contract and commenced construction on a parking garage. The total contract price was $90.4 million and was expected to be completed in July 2022 at a total estimated cost of $82.4 million. Payment by the customer was to be made in several stages, based on significant events and dates throughout the construction timeline. Based on the terms of the contract with the customer, control over the parking garage (i.e. ownership) does not transfer to the customer until completion. Sandhill’s year-end was September 30 and follows ASPE.

By the end of September, 2020, Sandhill had incurred $8,240,000 in costs and had invoiced $10,200,000 in progress billings. $8,300,000 of the progress billings had been collected.

By September 30, 2021, Sandhill had incurred $43,175,000 in total costs and had invoiced $45,500,000 in progress billings, including the progress billings in 2020. Of the total billings, $30,500,000 in total had been collected. Also, Sandhill reviewed its cost estimates on the project, and now believed the parking garage would cost $78.5

1. Using the completed-contract method, prepare all journal entries required for the year ended September 30, 2020. Use Materials, Cash, Payables for costs incurred to date.

2.Using the completed-contract method, prepare all journal entries required for the year ended September 30, 2021. Use Materials, Cash, Payables for costs incurred to date.

3. Prepare the journal entry to record revenue and cost of construction on completion of the project, assuming all billings are completed and the total actual cost is the same as the 2021 estimate. Use Materials, Cash, Payables for costs incurred to date.

Answer 1

	Facts of the Question
	Start of construction	Feb-20
	Total Contract Price	$9,04,00,000
	Total Estimated Cost	$8,24,00,000
	Revised estimated cost on 2021	$7,85,00,000
	Expected completion	Jul-22
1	Using the completed-contract method, prepare all journal entries required for the year ended September 30, 2020. Use Materials, Cash, Payables for costs incurred to date.
	Construction in Process	Debit	$82,40,000
	To Payable (or Cash/Bank)	Credit	$82,40,000
	(Being cost incurred for the construction project is accumulated in an asset account i.e. Construction in Process)
	Contracts Receivable	Debit	$1,02,00,000
	To Progress Billings	Credit	$1,02,00,000
	(Being progress billing is recorded to contra account to Construction in Progress)
	Cash/Bank	Debit	$83,00,000
	To Contracts Receivable	Credit	$83,00,000
	(Being partial amount collected for progress billing made on 2020)
2	Using the completed-contract method, prepare all journal entries required for the year ended September 30, 2021. Use Materials, Cash, Payables for costs incurred to date.
	Construction in Process	Debit	$3,49,35,000
	To Payable (or Cash/Bank)	Credit	$3,49,35,000
	(Being cost incurred for the construction project is accumulated in an asset account i.e. Construction in Process. Cost incurred in year 2021 is $43,175,000 - Cost recognized in 2020 i.e, $82,40,000)
	Contracts Receivable	Debit	$3,53,00,000
	To Progress Billings	Credit	$3,53,00,000
	(Being progress billing is recorded to contra account to Construction in Progress. Amount billed in 2021 is $45,500,000 - amount billed in 2020 i.e. $1,02,00,000)
	Cash/Bank	Debit	$2,22,00,000
	To Contracts Receivable	Credit	$2,22,00,000
	(Being partial amount collected for progress billing made on 2021. Amount collected in year 2021 is $30,500,000- collection of 2020 i.e. 83,00,000)
3	Prepare the journal entry to record revenue and cost of construction on completion of the project, assuming all billings are completed and the total actual cost is the same as the 2021 estimate. Use Materials, Cash, Payables for costs incurred to date.
	Construction in Process	Debit	$3,53,25,000
	To Payable (or Cash/Bank)	Credit	$3,53,25,000
	(Being cost incurred for the construction project is accumulated in an asset account i.e. Construction in Process. Cost incurred in year the year of completion is $7,85,00,000 - cost incurred in 2020 and 2021)
	Contracts Receivable	Debit	$4,49,00,000
	To Progress Billings	Credit	$4,49,00,000
	(Being progress billing is recorded to contra account to Construction in Progress. Amount billed in the year of completion is $9,04,00,000 i.e. total contract price - amount billed in 2020 and 2021)
	Cash/Bank	Debit	$5,99,00,000
	To Contracts Receivable	Credit	$5,99,00,000
	(Being partial amount collected for progress billing made on 2021. Amount collected in the year of collection is total revenue billed - amount collected in year 2020 and 2021)
	Construction in Process	Debit	$1,19,00,000
	Construction cost	Debit	$7,85,00,000
	To Construction Revenue	Credit	$9,04,00,000
	(Being revenue for the completed contract recognized)
	Progress Billings	Debit	$9,04,00,000
	To Construction in Process	Credit	$9,04,00,000
	(Being construction in progress account and progress billing account closed on completion of project)