Question
Crane Construction Inc., which has a calendar year end, has entered into a non-cancellable fixed price contract for $2.9 million beginning September 1, 2020, to
Crane Construction Inc., which has a calendar year end, has entered into a non-cancellable fixed price contract for $2.9 million beginning September 1, 2020, to build a road for a municipality. It has been estimated that the road construction will be complete by June 2022. The following data pertain to the construction period.
2020 | 2021 | 2022 | ||||
Costs to date | $848,000 | $1,871,250 | $2,428,000 | |||
Estimated costs to complete | 1,802,000 | 623,750 | 0 | |||
Progress billings to date (non-refundable) | 890,000 | 2,378,000 | 2,900,000 | |||
Cash collected to date | 748,000 | 2,271,000 | 2,900,000 |
Using the percentage-of-completion method, calculate the estimated gross profit that would be recognized during each year of the construction period.
CRANE CONSTRUCTION INC. | ||||
STATEMENT OF GROSS PROFIT | ||||
2020 | 2021 | 2022 | Total | |
Revenue | $928,000 | $1,247,000 | $725,000 | $2,900,000 |
Costs | ($848,000) | ($1,023,250) | ($556,750) | ($2,428,000) |
Gross profit | $80,000 | $223,750 | $168,250 | $472,000 |
Using the percentage-of-completion method, prepare the journal entries for 2020 and 2021. (Use Materials, Cash, Payables for costs incurred to date.)
For the Year 2020:
1-
2-
(To record Cost of Construction)
1-
2-
To record progress billings
1-
2-
To record collections
1-
2-
To record revenues
1-
2-
To record construction expenses
Same procedures for 2021:
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