Construction Contract

Fexco Construction Company signs a contract on 1 July 2018, agreeing to build a warehouse for ABC Corporation Limited at a contract price of $12 million. Fexco Construction Company estimates that construction costs will be as follows:

2018$2.5 million

2019$4.0 million

2020$2.5 million

The contract provides that ABC Corporation Limited will make payments on 31 December each year as follows:

$2018$3.5 million

$2019$4.5 million

$2020$4.0 million

The contract is completed and accepted on 31 December 2020. Assume that actual costs and cash collections coincide with expectations.

Fexco Construction Company has a financial year ending 31 December.

Required

Provide the journal entries for 2018, 2019 and 2020, assuming that:

(a)The stage of completion can be reliably estimated; and

(b)The stage of completion cannot be reliably estimated.