Exercise 18-37 Yanmei Construction Company began operations on January 1, 2017.

Question

Exercise 18-37 Yanmei Construction Company began operations on January 1, 2017. During the year, Yanmei Construction entered into a contract with Lundquist Corp. to construct a manufacturing facility. At that time, Yanmei estimated that it would take 5 years to construction of the facility is $6,000,000. During the year, Yanmei incurred $1,185,800 in construction costs related to the construction project. The estimated cost to complete the facility at a total cost of $4,500,000. The total contract price for complete the contract is $4,204,200, Lundquist Corp. was billed and paid 25% of the contract price. Prepare schedules to compute the amount of gross profit to be recognized for the year ended December 31, 2017, and the amount to be shown as "costs and recognized proft in excess of billings" or billings in excess of costs and recognized profit" at December 31, 2017, under each of the following methods. (Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g. (45). If answer is o, please enter O. Do not leave any fields blank.) (a) Completed-contract method. Gross Profit to be recognized s

Explanation / Answer

Yanmei Construction began Operations on 1/1/2017 Entered into a contract with Lundquist Corp. for construction of a manufacturing facility Estimations Time to complete = 5 Years Projected Costs = $4,500,000 Total Contract Price = $6,000,000 In 2017 Actual cost incurred on the project = $1,185,800 Estimated Costs to complete the Project = $4,204,200 Payment made = 25% of contract price = 25% X 6,000,000= 1,500,000 a) Completed Contract Method Under Completed Contract Method, Revenue and Profits and recognised only after completion of project Percentage of work completed = Cost Incurred till Date/ Estimated Total Costs *100 28.21% I am assuming that $4,204,200 is the final total costs to complete the project and it includes the amount already spent. Accounts Receivable in Current Period = 6,000,000 X 28.21% =        1,692,600 Journal Debit Credit Unbilled Revenue 1,692,600 Construction in Progress 1,185,500 Unbilled Revenue in excess of cost 507,100 Note : The above accounts are Balance Sheet Accounts. No Impact on Income Statements as no Revenues and Profits are recognised Computation of Billings on Uncompleted Contract Unbilled Revenue 1,692,600 Costs Incurred        (1,185,500) Billings in excess of costs             507,100 b) Percentage of Completion Method Percentage of work completed = 28.21% (Computed above) Revenue Earned = 6,000,000 * 28.21% = $1,692,600 Cost Incurred = $1,185,500 Recognized Profit= 1,692,600-1,185,500 = 507,100

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.