Question

Windham Construction Company uses the percentage of completion method of accounting. In 2018 Windham started work on a two-year contract with a total price of $15,000,000. Data for 2018 and 2019 are presented below: (Follow GAAP)

                                                                 2018                            2019          

            Costs incurred to date             $7,200,000                  $12,050,000

            Estimated costs to complete   4,800,000                         - 0 -

            Billings during the year          6,000,000                      9,000,000

            Collections during the year     4,200,000                      8,900,000

(a)       How much revenue should be reported for 2018?

(b)        What is the total amount of gross profit that will be reported on this contract?

(c)        Make the journal entries to record the 2018 costs incurred under the contract, the billings,

            the collections and the year-end entry to record the 2018 revenues, expenses and gross

            profit.

Answer 1

Required a

For the year 2018

Cost incurred to date = $7,200,000

Estimated costs to complete = $4,800,000

Total estimated cost = $7,200,000 + $4,800,000 = $12,000,000

Percentage of Work completed = $7,200,000 / $12,000,000 *100 = 60%

Therefore total revenue to be recognized in 2018 = $15,000,000 * 60% = $9,000,000

Required b

Gross profit to be reported in 2018 = $9,000,000 - $7,200,000 = $1,800,000

Required c

Particulars	Debit	Credit
Contract cost incurred	$ 72,00,000
Cash		$ 72,00,000
Accounts Receivable	$ 60,00,000
Contract Revenue Earned		$ 60,00,000
Cash	$ 42,00,000
Accounts Receivable		$ 42,00,000
Unbilled contract receivables	$ 30,00,000
Contract Revenue Earned		$ 30,00,000

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