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I need help understand why for requirement 2, the CIP inventory for 2015 is 600k and not 968640. Thank you! QUESTION (LOSSES ON CONSTRUCTION CONTRACT)
I need help understand why for requirement 2, the CIP inventory for 2015 is 600k and not 968640. Thank you!
QUESTION (LOSSES ON CONSTRUCTION CONTRACT) Banks Construction Company contracted to build an office block for $3,200,000. Construction began in September 2014 and was scheduled to be completed in May 2016. Banks has a December 31 year-end. Data related to the contract are summarized below: Required 1. Prepare the journal entries for Banks, assuming the percentage-of-completion method. Use costs incurred to date divided by total estimated construction costs to measure percentage complete. 2. Prepare the balance sheet and income statement presentation for this contract by year, assuming the percentage-of-completion method is used. Requirement 1 \begin{tabular}{|c|c|c|c|} \hline & 2014 & 2015 & 2016 \\ \hline & $500,000 & $2,300,000 & $3,400,000 \\ \hline & \begin{tabular}{r} 3,200,000 \\ 3,000,000 \\ 200,000 \\ 16.67% \end{tabular} & \begin{tabular}{r} 3,200,000 \\ (1,700,000)4,900,000 \\ 46.94% \end{tabular} & \begin{tabular}{r} 3,200,000 \\ $(200,000)3,400,000 \\ 100.00% \end{tabular} \\ \hline \begin{aligned} Revenue to be recognized \\ 2014: \( \quad(\$ 3,200,000 \times 16.67 \%=\$ 533,440)-0 \\ 2015: \quad(\$ 3,200,000 \times 46.94 \%=\$ 1,502,080)-\$ 533,440 \\ 2016: \quad(\$ 3,200,000 \times 100 \%)-\$ 533,440-\$ 968,640\end{aligned} \) & $533,440 & $968,640 & $1,697,920 \\ \hline \end{tabular} Entries: Profit from 2014 PLUS Loss inherent in the contract (33,440+1,700,000=1,733,440) NOTICE TOTAL REVENUE IS $3,200,000. NOTICE TOTAL COSTS OF CONSTRUCTION IS $3,400,000Step by Step Solution
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