2. Pearland Construction Company (PCC) entered into a contract to build a parkin
ID: 2487901 • Letter: 2
Question
2. Pearland Construction Company (PCC) entered into a contract to build a parking complex. The project will commence on January 1, 2017. The complex will cost approximately $600,000 and will take 3 years to complete construction. PCC will bill its client $900,000 for the construction. The following information contain data for the construction
Description 2017 2018 2019
Costs to date $270,000 $450,000 610,000
Estimated costs to complete 330,000 150,000 0
Progress billings to date 270,000 550,000 900,000
Cash collected to date 240,000 500,000 900,000
Required a. Using the percentage-of-completion method, compute the estimated gross profit that would be recognized by PCC during each year (2017, 2018, and 2019) of the construction.
b. Prepare all necessary journal entries for each year of the construction.
3. Swift Company uses installment sales method. Below is a summary of its sales, cost of goods sold, and gross profit for three years.
Description 2017 2018 2019
Installment sales $250,000 $260,000 $280,000
Cost of goods sold 155,000 163,800 182,000
Gross profit 95,000 96,200 98,000
Swift Company’s collections from customers are duplicated below:
Description 2017 2018 2019
2017 installment sales $75,000 $100,000 $50,000
2018 installment sales 100,000 120,000
2019 installment sales 100,000
Required Assume Swift uses installment sales method of accounting a. Compute the gross profit for 2017, 2018, and 2019. b. Prepare journal entries for 2019
Explanation / Answer
Description 2017 2018 2019 Contract Price C 900000 900000 900000 Costs to date a 270000 450000 610000 Estimated costs to complete b 330000 150000 0 Total Estimated Cost D= a+b 600000 600000 610000 Estimated gross profit C-D 300000 300000 290000 % completed P=a/D*100 45 75 100 Revenue recognized Current year C*P 405000 675000 900000 Less: Prior year 0 -405000 -675000 Revenue recognized 405000 270000 225000 Progress billings to date 270000 550000 900000 Cash collected to date 240000 500000 900000 Estimated Cost 600000 Contract Price 900000 Journal entries Dr Cr 2017 Contruction in Progress 270000 cash 270000 Accounts receivable 270000 Billing on contruction contract 270000 Cash 240000 Accounts receivable 240000 Contruction in progress 135000 Contruction expense 270000 Contruction Revenue 405000 2018 Contruction in Progress(450000-270000) 180000 cash 180000 Accounts receivable 280000 Billing on contruction contract 280000 Cash (500000-240000) 260000 Accounts receivable 260000 Contruction in progress 90000 Contruction expense 180000 Contruction Revenue 270000 2019 Contruction in Progress(610000-450000) 160000 cash 160000 Accounts receivable (900000-550000) 350000 Billing on contruction contract 350000 Cash (900000-500000-) 400000 Accounts receivable 400000 Contruction in progress 65000 Contruction expense 160000 Contruction Revenue 225000 Billing on contruction contract 610000 Contruction in progress 610000
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