At times, Holiday takes on long term projects for theme parks. During 2016, Holi
ID: 2599956 • Letter: A
Question
At times, Holiday takes on long term projects for theme parks. During 2016, Holiday took on 4-year, long term project for Christmas Land, a destination theme park in Fargo, North Dakota. The total estimated cost of the project was $8,000,000 and the contract was for $9,850,000. The detail of the project to date is as follows: Note: the 2016 entries are already reflected in the 2016 trial balance but none of the 2017 entries have been recorded.
2016: Costs Incurred $3,500,000
Estimated Costs to Complete $6,500,000
Billings $2,800,000
Customer Receipts $1,980,000
2017: Costs Incurred $2,750,000
Estimated Costs to Complete $3,875,000
Billings $2,010,000
prepare appropriate analysis and journal entries
Explanation / Answer
Journal entries for the year 2017 (Amount in $)
The total cost in 2016 = Cost incurred+Total estimated costs = $3,500,000+$6,500,000 = $10,000,000
Contract Price = $9,850,000
As the contract price is less than the total cost, Holiday should provide the amount of $150,000 ($10,000,000-$9,850,000) as reserve for loss on contract.
In 2017, The total cost = Cost incurred for 2016 and 2017+Estimated cost
= $3,500,000+$2,750,000+$3,875,000 = $10,125,000
The contract price is less than total cost by $275,000 ($10,125,000-$9,850,000). the excess reserve fof loss on contract is required for $125,000 ($275,000-$150,000) for 2017.
Account Title Debit Credit Work in progress 2,750,000 Accounts Payable 2,750,000 (To record the cost incurred) Accounts Receivable 2,010,000 Billings 2,010,000 (To record the amount billed)Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.