Question
Precision Construction has agreed to build a 5-story office building for the Mountain States Bank Corporation. The contract calls for a contract price of $15,000,000
Precision Construction has agreed to build a 5-story office building for the Mountain States Bank Corporation.
The contract calls for a contract price of $15,000,000 for the building, with progress payments being made by
Mountain States as the construction proceeds. The period of construction is estimated to be 30 months. The con-
tract is signed on February 1, 2020, and construction begins immediately. Precision Construction uses the cost-
to-cost method to measure the completion of its performance obligations. The building is completed and turned
over to Mountain States Bank on December 1, 2022. Data on costs incurred, estimated costs to complete, prog-
ress billings, and progress payments over the period of construction follow.
$ thousands 2020. 2021. 2022
Costs incurred this period. . . . . . . . . . . . . . . . . . . . . $ 1,500 $ 7,875 $ 3,825
Costs incurred to date . . . . . . . . . . . . . . . . . . . . . . . 1,500 9,375 13,200
Estimated costs to complete at year-end . . . . . . . . . 10,500 3,125 0
Estimated total costs of project. . . . . . . . . . . . . . . . . 12,000 12,500 13,200
Progress billings this period . . . . . . . . . . . . . . . . . . . 1,200 6,000 7,800
Progress payments received this period . . . . . . . . . 825 6,300 7,875
Required
a. Provide the 2020, 2021, and 2022 journal entries assuming revenue is recognized at a point in time. Provide
entries for (1) construction costs incurred, (2) progress billings, (3) cash collections, and (4) revenues and
expenses.
b. Provide the 2020 and 2021 journal entries assuming revenue is recognized over time. Provide entries for
(1) construction costs incurred, (2) progress billings, (3) cash collections, (4) revenues and expenses, and
(5) to close out accounts upon completion of the contract.
c. For part a, prepare the income statement and balance sheet presentations for this contract for each of the
years 2020, 2021, and 2022.
d. For part b, prepare the income statement and balance sheet presentations for this contract for each of the years 2020,2021,and 2022
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started