Exercise 18-36 2017 2018 LINK TO TEXT LINK TO TEXT Account Titles and Explanatio
ID: 2546357 • Letter: E
Question
Exercise 18-36
2017
2018
LINK TO TEXT
LINK TO TEXT
Account Titles and Explanation
Debit
Credit
(To record cost of of construction.)
(To record progress billings.)
(To record collections.)
(To recognize revenue.)
Open Show Work
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Exercise 18-36
Oriole Construction Company uses the percentage-of-completion method of accounting. In 2017, Oriole began work under contract #E2-D2, which provided for a contract price of $2,156,000. Other details follow:2017
2018
Costs incurred during the year $598,290 $1,421,000 Estimated costs to complete, as of December 31 1,018,710 –0– Billings to date 425,000 2,156,000 Collections during the year 357,000 1,497,000Explanation / Answer
Percentage of Completion method based on the cost incurred.
i.e. % of work performed = contract cost incurred till balance sheet date
Estimated total contract cost
Particulars 2017 2018
Total Contract Revenue 2,156,000 2,156,000
Total estimated cost to complete contract 1,617,000 2,019,290
Costs Incurred till date 598,290 2,019,290
% of completion 37% 100%
Amount of revenue to be recognised in each year 797,720 1,358,280
(2,156,000*37% and 2,156,000* 100-37%)
In contrast to the percentage of completion method, which records estimated revenue in each period based on the percentage of completion of the contract, the completed contract method defers contract revenue. So the complete revenue of $ 2,156,000 would be recognised in year 2018.
Journal entries for 2017 (using the percentage-of-completion method)
(To record cost of of construction.)
Material a/c Dr $ 598,290
To Cash/Payabels a/c $ 598,290
(To record collections.)
Cash/Bank a/c Dr. $ 357,000
To Receivables a/c $ 357,000
(To recognize revenue.)
Cash/Receivables Dr. $ 797,720
To Sales/Contract Receipts a/c $ 797,720
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