Recording Long- Term Construction: Recognize Revenue at a Point in Time and Over Time

Watson Construction Company contracted to build a plant for $2,250,000. Construction started in January of Year 1 and was completed in November of Year 2. Watson uses the cost-to-cost method to measure the completion of its performance obligations. Data relating to the contract follow.

As of December 31

Year 1

Year 2

Costs incurred

$1,305,000

$540,000

Estimated costs to complete

Billings

Cash collections

562,500

1,215,000 1,035,000

1,125,000 1,125,000

Required

Point in Time

Over Time

b. Provide the Year 1 and Year 2 journal entries for Watson 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. Percent Complete

At the end of Year iS

Mum merato

Denominator

Result

0 X

%

Note: Use the result EXACTLY as displayed above in the calculations below.

Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit as the account names and leave the Dr. and Cr. answers blank (zero).

Year 1

Account Name

Construction in Process

Cash

To record constructions costs incurred

AccoUnts receivable

Billings on Contracts

To record progress billings

Cash

Accounts Receivable

To record collections

Construction in Process

Cost of Construction

Revenues from Long-Term Contracts To recognize revenues and expenses

Billings on Contracts

Construction in Process

To close out accounts

Year 2

Account Name

2.

Construction in Process

Cash

To record constructions costs incurred

Accounts Receivable

Billings on Contracts

To record progress billings

Cash

Accounts Receivable

To record collections

Construction in Process

Cost of Construction

Revenues from Long-Term contracts

To recognize revenues and expenses

Billings on Contracts

Construction in Process

To close out accounts

Dr.

1,305,000

1,215,000

1,125,000

1,305,000

0

O

Dr.

540,000

1,035,000

0

1,125,000

0

540,000

0

v

2,250,000

0

Cr.

1,305,000

Ov

1,215,000

0 v

1.125.000

0 x

Cr.

540 000

1,035,000

0 v

1,125,000 V

0

0 v

0 V

2.250,000