Question 1 Whispering, Inc. began work on a $7,029,000 contract in 2017 to const

Question

Question 1

Whispering, Inc. began work on a $7,029,000 contract in 2017 to construct an office building. During 2017, Whispering, Inc. incurred costs of $1,832,950, billed its customers for $1,163,000, and collected $919,000. At December 31, 2017, the estimated additional costs to complete the project total $3,404,050.

Prepare Whispering’s 2017 journal entries using the percentage-of-completion method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For costs incurred use account Materials, Cash, Payables. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation

Debit

Credit

(To record costs incurred.)

(To record billings.)

(To record collections.)

(To recognize revenue.)

Account Titles and Explanation

Debit

Credit

(To record costs incurred.)

(To record billings.)

(To record collections.)

(To recognize revenue.)

Explanation / Answer

Gross profit under percentage of completion method =(costs to date / total estimated costs * expected profit) - previously recognized profits

= 1,832,950/(1,832,950+3,404,050) * [(1,832,950+3,404,050)-7,029,000] - 0

= 1,832,950/5,237,000*1,792,000 - 0

= 627,200

Construction in progress 1,832,950 Accounts payable or Cash 1,832,950 (to record costs incurred) Accounts Receivable 1,163,000 Progress billings 1,163,000 (to record billings) Cash 919,000 Accounts receivable 919,000 (to record collections) Construction in progress 627,200 Gross profit on construction 627,200 (to recognize revenue)

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