Swifty Construction Company began work on a $416,400 construction contract in 20
ID: 2550468 • Letter: S
Question
Swifty Construction Company began work on a $416,400 construction contract in 2017. During 2017, Swifty incurred costs of $277,100, billed its customer for $215,200, and collected $173,900. At December 31, 2017, the estimated additional costs to complete the project total $161,000.
Prepare Swifty’s journal entry to record profit or loss, if any, using (a) the percentage-of-completion method and (b) the completed-contract method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)
Explanation / Answer
In the question details regarding only one year is provided, so the following enries for Decmber 2017 only
Contract Cost : 416,400
Cost Incured : 277,100
Billed to customer : 215,200
Amount collected : 173,900
Additional cost to completed the project : 161,000
Percentage of completed method:
In this method revenue to be recognised based on the percentage completed during the year.
Revenue Recognised = Contract cost * Percentage of Completion
Percentage of completion = Cost Incured / (Cost incured + expected cost to be incured in future)
= 277100/ (277100+161000)
= 63.25%
Revenue to be recognised = 416400 * 63.25%
= 263375 (Rounded off)
Profit/(Loss) = Contract Revenue - contract cost
= 263,375 - 277100
= (13,725)
Entries:
For recognising profit there is no seperate entry , last entry automatically lead to profit.
Completed contract method:
Entries:
Construction in process/Work in Progress 277100 Bank 277100 Advance Receivable 215200 Billing on construction contract 215200 Bank 173900 Advance Recevable 173900 Construction Expenses 277100 Construction Revenue 263374.66 Construction inprocess 13725.34Related Questions
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