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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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