Question
Thrasher Construction Co. was contracted to construct a building for $915,000. The building is owned by the customer throughout the contract period. The contract provides
Thrasher Construction Co. was contracted to construct a building for $915,000. The building is owned by the customer throughout the contract period. The contract provides for progress payments. Thrashers accounting year ends 31 December. Work began under the contract on 1 July 20X5, and was completed on 30 September 20X7. Construction activities are summarized below by year:
20X5 | Construction costs incurred during the year, $168,700; estimated costs to complete, $590,500; progress billings during the year, $143,300; and collections, $131,200. |
20X6 | Construction costs incurred during the year, $421,700; estimated costs to complete, $178,100; progress billing during the year, $358,400; and collections, $356,200. |
20X7 | Construction costs incurred during the year, $183,000. Because the contract was completed, the remaining balance was billed and later collected in full per the contract. |
Required: 1. Prepare Thrashers journal entries to record these events. Assume that percentage of completion is measured by the ratio of costs incurred to date divided by total estimated construction costs. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to the nearest whole dollar.)
ACCOUNT BANK:
- No journal entry required
- Accounts receivable
- Cash
- Construction costs
- Contract asset
- Contract costs
- Contract liability
- Cost of goods sold
- Revenue - Construction
FOR ALL THREE YEARS SEPARATELY:
. Record the construction costs incurred.
. Record the progress billings.
. Record the collection of billings.
. Record the recognition of income.
. Record entry to recognize costs related to revenue recognized to date.
2. Provide the balances that would be shown on the SCI and SFP for this contract for each year. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar.)
20X5 | 20X5 | 20X7 | |
STATEMENT OF FINANCIAL POSITION: | |||
CURRENT ASSETS: | |||
AR | |||
CONTRACT ASSET | |||
INCOME STATEMENT: | |||
INCOME ON CONSTRUCTION (NET) |
3-a. Now assume that the building is owned by Thrasher throughout the construction period and title is transferred to the customer only once the building is fully constructed. Prepare the journal entries required to record the events from 20X5 to 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
ACCOUNT BANK:
- No journal entry required
- Accounts receivable
- Cash
- Construction costs
- Construction-in-progress inventory
- Contract asset
- Contract costs
- Contract liability
- Cost of goods sold
- Revenue - Construction
20X5
-
Record the construction costs incurred.
-
Record the progress billings.
-
Record the collection of billings.
20X6
-
Record the construction costs incurred.
-
Record the progress billings.
-
Record the collection of billings.
20X7
-
Record the construction costs incurred.
-
Record the progress billings.
-
Record the collection of billings.
-
Record the transfer of construction in progress to construction cost.
-
Record the transfer of contract liability to recognize revenue.
3-b. Calculate the balances that would be shown on the SCI and SFP for this contract for each year
20X5 | 20X6 | 20X7 | |
Statement of financial position: | |||
Current assets: | |||
AR | |||
Inventory: | |||
Construction in progress inventory | |||
Liabilities: | |||
Contract liability | |||
Income statement: | |||
Income on construction (net) |
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