In 2014, Gurney Construction Company agreed to construct an apartment building a

Question

In 2014, Gurney Construction Company agreed to construct an apartment building at a price of $1,623,000. The information relating to the costs and billings for this contract is shown below.

2014

2015

2016

Account Titles and Explanation

Debit

Credit

(To record cost of of construction.)

(To record progress billings.)

(To record collections.)

(To recognize revenue.)

Partial Income Statement (2015)

Partial Balance Sheet (12/31/15)

2014

2015

2016

Costs incurred to date $371,160 $804,180 $1,098,000 Estimated costs yet to be incurred 659,840 226,820 –0– Customer billings to date 318,900 867,200 1,623,000 Collection of billings to date 251,300 721,900 1,454,000

Explanation / Answer

Stage of completion :-

2014 - 371160 / 1031000 = 0.36 i.e., 36%

2015 - 804180 / 1031000 = 0.78 i.e., 78%

(a) Amount of Gross profit to be recognized:- (Recognized Profit)

   Year 2014 - (1623000 * 36%) - 371160 = $ 213120

   Year 2015 - (1623000 * 78%) - 804180 = $ 461760

(b) Income statement

Particulars 2014 2015 Contract Revenue (A) 1623000 1623000 Contract cost incurred (B) 371160 804180 Contract cost yet to be incurred to complete (C) 659840 226820 Total estimated contract cost (D) = (B) + (C) 1031000 1031000 Estimated Profits (A) - (D) 592000 592000

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