Question
Recording Long- Term Construction: Recognize Revenue at a Point in Time and Over Time Watson Construction Company contracted to build a plant for $500,000. Construction
Recording Long- Term Construction: Recognize Revenue at a Point in Time and Over Time
Watson Construction Company contracted to build a plant for $500,000. 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 | $290,000 | $120,000 |
Estimated costs to complete | 125,000 | |
Billings | 270,000 | 230,000 |
Cash collections | 250,000 | 250,000 |
Required
- Point in Time
- Over Time
a. Provide the Year 1 and Year 2 journal entries for Watson 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. Note: If a journal entry isn't required on any of the dates shown, select "N/Adebit" and "N/Acredit" as the account names and leave the Dr. and Cr. answers blank (zero).
Year 1 | Account Name | Dr. | Cr. |
---|---|---|---|
1. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To record constructions costs incurred | |||
2. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To record progress billings | |||
3. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To record collections | |||
4. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To recognize revenues | |||
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To recognize expenses |
Year 2 | Account Name | Dr. | Cr. |
---|---|---|---|
1. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To record constructions costs incurred | |||
2. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To record progress billings | |||
3. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To record collections | |||
4. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To recognize revenues | |||
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To recognize expenses |
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 | Numerator | Denominator | Result | ||
---|---|---|---|---|---|
At the end of Year 1 | Answer | Answer | = |
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/Adebit" and "N/Acredit" as the account names and leave the Dr. and Cr. answers blank (zero).
Year 1 | Account Name | Dr. | Cr. |
---|---|---|---|
1. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To record constructions costs incurred | |||
2. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To record progress billings | |||
3. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To record collections | |||
4. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To recognize revenues and expenses | |||
5. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To close out accounts |
Year 2 | Account Name | Dr. | Cr. |
---|---|---|---|
1. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To record constructions costs incurred | |||
2. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To record progress billings | |||
3. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To record collections | |||
4. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To recognize revenues and expenses | |||
5. | Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | |
Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit | Answer | ||
To close out accounts |
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