Hamilton Construction Company uses the percentage-of-completion method of accoun

Question

Hamilton Construction Company uses the percentage-of-completion method of accounting. In 2014, Hamilton began work under contract #E2-D2, which provided for a contract price of $2,200,000. Other details follow:

(a) What portion of the total contract price would be recognized as revenue in 2014? In 2015?

(b) Assuming the same facts as those above except that Hamilton uses the completed-contract method of accounting, what portion of the total contract price would be recognized as revenue in 2015?

(c) Prepare a complete set of journal entries for 2014 (using the percentage-of-completion method).

Explanation / Answer

a)

Percentage of Completion in 2014 = Cost incurred till date/( Cost incurred till date + Expected cost to be incurred)

Percentage of Completion in 2014 = 640000/(640000+960000)

Percentage of Completion in 2014 = 40%

Percentage of Completion till 2015 = Cost incurred till date/( Cost incurred till date + Expected cost to be incurred)

Percentage of Completion till 2015 = (640000+1425000)/(640000+1425000 + 0)

Percentage of Completion till 2015 = 100%

Revenue Recognised in 2014 = Percentage of Completion till 2014 * Total Contract price - Revenue recognised in earlier period

Revenue Recognised in 2014 = 40%*2200000

Revenue Recognised in 2014 = 880000

Revenue Recognised in 2015 = Percentage of Completion in 2014 * Total Contract price - Revenue recognised in earlier period

Revenue Recognised in 2015 = 100%*2200000 - 880000

Revenue Recognised in 2015 = 1320000

b)

Revenue Recognised in 2015 = 2200000

Note : Revenue is recognised 100% in the year in which it is completed under the completed contract method

c)

Account Title & Explaination Debit Credit Construction in Process 640000 Material,Cash,Payable 640000 (to record cost of construction) Account Recievable 420000 Construction in Process 420000 (To record progress billing) Cash 350000 Account Recievable 350000 (To record cash collection) Construction in Process 220000 Construction Expenses 640000 Revenue 880000 (To record revenue)

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