Question
The board of directors of Ogle Construction Company is meeting to choose between the completed-contract method and the percentage-of-completion method of accounting for long-term contracts
The board of directors of Ogle Construction Company is meeting to choose between the completed-contract method and the percentage-of-completion method of accounting for long-term contracts in the company's financial statements. You have been engaged to assist Ogle's controller in the preparation of a presentation to be given at the board meeting. The controller provides you with the following information:
1. Ogle commenced doing business on January 1, 2018.
2. Construction activities for the year ended December 31, 2018, were as follows:
Total Contract Billings Through Cash Collections
Project Price 12/31/18 Through 12/31/18
A $500,000 $340,000 $310,000
B 720,000 210,000 210,000
Contract Costs Estimated
Incurred Through Additional Costs to
Project 12/31/18 Complete Contracts
A $424,000 $101,000
B 195,000 455,000
3. Each contract is with a different customer.
4. Any work remaining to be done on the contracts is expected to be completed in 2019.
Instructions
(a) Prepare a schedule by project, computing the amount of income (or loss) before selling, general, and administrative expenses for the year ended December 31, 2018, which would be reported under:
(1) The completed-contract method.
(2) The percentage-of-completion method (based on estimated costs).
(b) Prepare the general journal entry(ies) to record revenue and gross profit on project B (second project) for 2018, assuming that the percentage-of-completion method is used.
(c) Indicate the balances that would appear in the balance sheet at December 31, 2018 for the following accounts for Project A, assuming that the percentage-of-completion method is used.
- Accounts Receivable
- Billings on Construction in Process
- Construction in Process
(d) How would the balances in the accounts discussed in part (c) change (if at all) for Project B, if the completed-contract method is used?
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