ACC349 Accounting Theory and Practice

Chapter 6 Simulation

Assume ABC Company contracted to complete a project for a customer for a contract price of $2,000,000. The project began in 2019 and will be completed in 2020.

Data related to the project is summarized below:

2019 2020

Construction costs incurred during the year $ 400,000 $ 1,475,000

Construction costs incurred in prior years $ 0 $ 400,000

Cumulative actual construction costs $ 400,000 $ 1,875,000

Estimated costs to complete $ 1,200,000 $ 0

Total Estimated and Actual Construction

Costs $ 1,600,000 $ 1,875,000

Billings during the year $ 380,000 $ 1,620,000

Cash collections during the year $ 250,000 $ 1,750,000

Required:

1. Compute the amount or Revenue and Gross Profit to be recognized in each year (2019 and 2020) using the percentage of completion method, recognizing income over a period of time.
2. Record the journal entries necessary to record the revenue and gross profit or loss in 2019 and 2020.