Concept explainers
1.
Journalize entries for three years.
1.
Explanation of Solution
Contract:
Contract is an agreement among two parties or more parties which includes enforceable obligations and rights. A contract can be written, oral or implied by ordinary business practices.
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Accounting rules for Journal entries:
- To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
- To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.
Prepare journal entries:
Date | Account titles and Explanation | Debit ($) | Credit ($) |
2017 | Construction in progress | 150,000 | |
Accounts payable (inventory, cash, etc) | 150,000 | ||
(To record costs of construction) | |||
Accounts receivable | 120,000 | ||
Partial billings | 120,000 | ||
(To record partial billings) | |||
Cash | 100,000 | ||
Accounts receivable | 100,000 | ||
(To record collections) | |||
Construction expense [Refer to table (2)] | 150,000 | ||
Construction in progress [Refer to table (2)] | 60,000 | ||
Construction revenue [Refer to table (2)] | 210,000 | ||
(To record gross profit recognized) | |||
2018 | Construction in progress | 242,000 | |
Accounts payable (inventory, cash, etc) | 242,000 | ||
(To record costs of construction) | |||
Accounts receivable | 250,000 | ||
Partial billings | 250,000 | ||
(To record partial billings) | |||
Cash | 260,000 | ||
Accounts receivable | 260,000 | ||
(To record collections) | |||
Construction expense [Refer to table (2)] | 242,000 | ||
Construction in progress [Refer to table (2)] | 38,000 | ||
Construction revenue [Refer to table (2)] | 280,000 | ||
(To record gross profit recognized) | |||
2019 | Construction in progress | 168,000 | |
Accounts payable (inventory, cash, etc) | 168,000 | ||
(To record costs of construction) | |||
Accounts receivable | 330,000 | ||
Partial billings | 330,000 | ||
(To record partial billings) | |||
Cash | 340,000 | ||
Accounts receivable | 340,000 | ||
(To record collections) | |||
Construction expense [Refer to table (2)] | 168,000 | ||
Construction in progress [Refer to table (2)] | 42,000 | ||
Construction revenue [Refer to table (2)] | 210,000 | ||
(To record gross profit recognized) | |||
Partial billings | 700,000 | ||
Construction in progress | 700,000 | ||
(To close out construction accounts) | |||
Table (1)
Working notes:
(1)Calculate the gross profit recognition:
Particulars | 2017 | 2018 | 2019 |
Construction costs incurred during the year | $150,000 | $392,000 (2) | $560,000 (3) |
Estimated costs to compete | $350,000 | $168,000 | |
Total estimated costs | $500,000 | $560,000 | $560,000 |
Percent complete | 30% | 70% | 100% |
Revenue recognized during the year | 210,000 | 280,000 | 210,000 |
Construction cost incurred for the year | 150,000 | 242,000 | 168,000 |
Gross profit recognized | 60,000 | 38,000 | 42,000 |
Table (2)
(2)Calculate the amount of construction costs incurred during the year 2018:
(3)Calculate the amount of construction costs incurred during the year 2019:
2.
Journalize entries assuming that the contract represents a single performance obligation.
2.
Explanation of Solution
Single performance obligation: In single performance obligation, the transaction price is associated to the performance obligation and no allocation is needed.
Prepare journal entries:
Date | Account titles and Explanation | Debit ($) | Credit ($) |
2017 | Construction in progress | 150,000 | |
Accounts payable (inventory, cash, etc) | 150,000 | ||
(To record costs of construction) | |||
Accounts receivable | 120,000 | ||
Partial billings | 120,000 | ||
(To record partial billings) | |||
Cash | 100,000 | ||
Accounts receivable | 100,000 | ||
(To record collections) | |||
2018 | Construction in progress | 242,000 | |
Accounts payable (inventory, cash, etc) | 242,000 | ||
(To record costs of construction) | |||
Accounts receivable | 250,000 | ||
Partial billings | 250,000 | ||
(To record partial billings) | |||
Cash | 260,000 | ||
Accounts receivable | 260,000 | ||
(To record collections) | |||
2019 | Construction in progress | 168,000 | |
Accounts payable (inventory, cash, etc) | 168,000 | ||
(To record costs of construction) | |||
Accounts receivable | 330,000 | ||
Partial billings | 330,000 | ||
(To record partial billings) | |||
Cash | 340,000 | ||
Accounts receivable | 340,000 | ||
(To record collections) | |||
Partial billings Construction revenue | 700,000 | ||
Construction revenue | 700,000 | ||
(To record revenue at completion) | |||
Construction expense (3) | 560,000 | ||
Construction in progress | 560,000 | ||
(To recognize expense at completion) |
Table (3)
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Chapter 17 Solutions
Intermediate Accounting: Reporting and Analysis
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