On July 1, 2015, Anita Company entered into a contract to build an apartment bui
ID: 2462186 • Letter: O
Question
On July 1, 2015, Anita Company entered into a contract to build an apartment building. It is estimated that the building will take 3 years to complete. The contract price was $9,600,000. The following information pertains to the construction period.
2015 2016 2017
Costs incurred each year $3,400,000 $2,400,000 $2,900,000
Estimated costs to complete $4,600,000 $3,100,000 $–0–
Progress billings to date $1,200,000 $4,100,000 $4,300,000
Cash collected to date $900,000 $4,200,000 $4,000,000
Required: Show all calculations. They should be embedded in cells as much as possible. If they are embedded in cells you need not show them separately.
1. Compute the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used.
2. Prepare all necessary journal entries for 2015 and 2016. You need not do the entries for 2017.
3. Prepare a partial income statement for the fiscal years ended December 31, 2015 and December 31, 2016, showing the revenues, expenses, and gross profit or loss for each year in proper form, including a heading. You need not include 2017.
4. Prepare a partial balance sheet as of December 31, 2015 and December 31, 2016, showing the contract-related accounts, including accounts receivable but excluding cash. You need not include 2017.
5. What was the total profit on the contract? Show calculation.
6. How much does the customer still owe on the contract as of December 31, 2017? Show calculation.
Explanation / Answer
Answer 1. 2015 2016 2017 Cost Incurred each year 3,400,000 2,400,000 2,900,000 Cost Incurred to date 3,400,000 5,800,000 8,700,000 Estimated Costs 4,600,000 3,100,000 - Total Estimated Costs 8,000,000 8,900,000 8,700,000 % Completed 42.50% 65.17% 100.00% Revenue 4,080,000 2,176,180 3,343,820 Expenses 3,400,000 2,400,000 2,900,000 Gross Profit 680,000 (223,820) 443,820 Answer 2. Journal Entry Date Particulars Dr. Amt Cr. Amt 2015 Accounts Receivables Dr. 1,200,000 To Billings on Construction in Progress 1,200,000 2015 Construction Exp. Dr. 3,400,000 Contruction in Progress Dr. 680,000 To revenue from Long term Contracts 4,080,000 2015 Cash Dr. 900,000 To Accounts Receivables 900,000 2016 Accounts Receivables Dr. 4,100,000 To Billings on Construction in Progress 4,100,000 2016 Construction Exp. Dr. 2,400,000 To revenue from Long term Contracts 2,176,180 To Contruction in Progress 223,820 2016 Cash Dr. 4,200,000 To Accounts Receivables 4,200,000 Answer 3. Partial Income Statement 2015 2016 Revenue 4,080,000 2,176,180 Expenses 3,400,000 2,400,000 Gross Profit 680,000 (223,820) Answer 4. Partial Balance Statement 2015 2016 Accounts Receivables 300,000 200,000 Construction In Progress 680,000 456,180 Answer 5. Calculation of Total Profit Total revenue 9,600,000 Less: Total expenses 8,700,000 Profit from Contract 900,000 Answer 6. Customer Still Owe on Dec. 31, 2017 Total revenue 9,600,000 Less: Amt. Recd 900,000 2015 4,200,000 2016 4,000,000 9,100,000 2017 Amount Due 500,000
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