Arthur and Doyle Ltd. is a company involved in the construction of small residential complexes. Until the end of 2017, the company used the cost ratio method to estimate the percentage complete. After that point, the company switched to using estimates from architectural engineers to estimate the degree of completion. To prepare the financial report for the 2018 fiscal year, you have gathered the following data on projects that were in progress at the end of fiscal years 2016, 2017, and 2018:

Required:

a. Compute the amount of revenue and cost of sales that was recognized in 2016 and 2017 using the old accounting policy. 

b. Compute the amount of revenue and cost of sales that should be recognized in each year using the new accounting policy. 

c. Record the adjusting journal entries to reflect the change in accounting policy from using the cost ratio to using engineering estimates. The general ledger accounts for 2018 have not yet been closed. Ignore income tax effects.

Transcribed Image Text:

Project Opal (started 2016) Contract price Estimated total cost % complete at year-end (cost ratio) % complete at year-end (engineering estimate) Project Sapphire (started 2017) Contract price Estimated total cost % complete using cost ratio % complete using engineering estimate 2016 $15,000,000 $15,000,000 $12,000,000 $12,400,000 38% 40% 2017 15% 10% 100% 100% $20,000,000 $20,000,000 $16,000,000 $16,800,000 60% 50% 2018 $20,000,000 $16,700,000 100% 100%