Practice Long term contract solution

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Fanshawe College *

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6010

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Accounting

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Feb 20, 2024

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xlsx

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Practice Long Term Contract Question (solution) Note: entries for all years, both methods are below the Contract revenue 1,500,000 2015 2016 2017 Costs incurred during the year 175,000 678,000 316,000 Estimated costs to complete the project 825,000 320,000 - Project billings invoiced during the year 150,000 700,000 650,000 Cash reciepts from customers during the year 125,000 710,000 665,000 Question 2 Provide all required entries for 2016 under the percentage of completion method. 2015 2016 2017 Costs incurred to date 175,000 853,000 Total estimated costs 1,000,000 1,173,000 Percent complete 17.50% 72.72% Revenue to recognize 262,500.00 828,292.84 409,207 2016 Project in Progress 678,000 Cash 678,000 A/R 700,000 Billings on Contract 700,000 Cash 710,000 A/R 710,000 Construction expenses 678,000 Project in Progress 150,293 Construction Revenue 828,293 Question 3 Provide the balance sheet presentation of Accounts Receivable, Project In Progress and Billin the completed contract method. (solution is for both methods, all three years) Completed Contract 2015 2016 2017 A/R 25,000 15,000 - Inventory Project In Progress 175,000 853,000 - Less Billings on Contract 150,000 850,000 - Net 25,000 3,000 - Question 4 Provide all required entries for 2017 using the completed contract method.

2017 Project in Progress 316,000 Cash 316,000 A/R 650,000 Billings on Contract 650,000 Cash 665,000 A/R 665,000 Construction Expense 1,169,000 Project in Progress 1,169,000 Billings on Contract 1,500,000 Contract Revenue 1,500,000 Question 5 How much revenue should be recognized in 2017 using the percentage of completion method? 409,207 as per #2 above Question 6 Provide the closing entry for Project in Progress and Billings on Contract in 2017 using the pe completion method. 2017 Billings on Contract 1,500,000 Project in Progress 1,500,000 Full Accounting for Completed Contract 2015 201 Debit Credit Debit Project in Progress 175,000 678,000 Cash/A/P 175,000

A/R 150,000 700,000 Billings on Contract 150,000 Cash 125,000 710,000 A/R 125,000 Construction Expenses Project in Progress Billings on Contract Contract Revenue Full Accounting for % completion 2015 201 Debit Credit Debit Project in Progress 175,000 678,000 Cash/A/P 175,000 A/R 150,000 700,000 Billings on Contract 150,000 Cash 125,000 710,000 A/R 125,000 Construction Expense 175,000 678,000 Project in Progress 87,500 150,293 Contract Revenue 262,500 Billings on Contract Project In Progress

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solution. 2,015 175,000 87,500 262,500 ngs for 2016 under % of Completion 2015 2016 2,017 A/R 25,000 15,000 - Inventory Project In Progress 262,500 1,090,793 - Less Billings on Contract 150,000 850,000 - Net 112,500 240,793 -

ercentage of 16 2017 Credit Debit Credit 316,000 678,000 316,000

650,000 700,000 650,000 665,000 710,000 665,000 1,169,000 1,169,000 1,500,000 1,500,000 16 2017 Credit Debit Credit 316,000 678,000 316,000 650,000 700,000 650,000 665,000 710,000 665,000 316,000 93,207 828,293 409,207 1,500,000 1,500,000

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Practice Long Term Contract Question Contract revenue 1,500,000 2015 2016 2017 Costs incurred during the year 175,000 678,000 316,000 Total costs incurred to date 175,000 853,000 1,169,000 Estimated costs to complete the project 825,000 320,000 - Total estimated cost of the project 1,000,000 1,173,000 1,169,000 Project billings invoiced during the year 150,000 700,000 650,000 Cash reciepts from customers during the year 125,000 710,000 665,000 Question 1 How much revenue should be recognized in 2016 under the completed contract method? Nothing Question 2 Provide all required entries for 2016 under the percentage of completion method. Question 3 Provide the balance sheet presentation of Accounts Receivable, Project in Progress and Billings on Contract for 2016 under the completed contract method. Question 4 Provide all required entries for 2017 using the completed contract method. Question 5 How much revenue should be recognized in 2017 using the percentage of completion method? Question 6 Provide the closing entry for Project in Progress and Billings on Contract in 2017 using the percentage of completion method. Solutions Q1 Zero! - under the completed contract method revenues and expenses are not recognized until the final year when the contrct is complete Q2 dr PIP - Project in Progress 678,000 cr Cash/AP 678,000 - to record the construction expenses for the year dr AR 700,000 cr BOC Bank of Canada 700,000 - to record the progress billings for the year dr Cash 710,000

cr AR 710,000 - to record the cash receipts for the year dr Construction expenses 678,000 dr PIP 150,293 cr Construction revenue 828,293 - to recognize revenues and expenses for the year ROUGH WORK % complete = Total costs incurred TO DATE Most recent estimate of the TOTAL COST OF THE PROJECT = 853,000 1,173,000 = 72.7% Revenue Recognition = (% complete * Total Contract Revenue) - Revenue Prev Recognized = 72.7% * 1,500,000 - 262,500 = 828,293 Hey! We need the revenue previously recognized in 2015! So let's calculate it….. % complete 2015 = Total costs incurred TO DATE Most recent estimate of the TOTAL COST OF THE PROJECT = 175,000 1,000,000 = 17.5% = 17.5% * 1,500,000 - 0 = 262,500 Q3 Current Assets x AR 15,000 x PIP 853,000 x Less; BOC 850,000 x Net investment in project 3,000 x Q4 dr PIP 316,000 cr Cash/AP 316,000 Revenue Recog 2015 = (% complete * Total Contract Revenue) - Revenue Prev Recognized

- to record the construction expenses for the year dr AR 650,000 cr BOC 650,000 - to record the progress billings for the year dr Cash 665,000 cr AR 665,000 - to record the cash receipts for the year dr BOC 1,500,000 cr Construction Revenue 1,500,000 - to record the construction revenue for the project dr Contrcustion costs 1,169,000 cr PIP 1,169,000 - to record the construction expenses for the project Q5 % complete = Total costs incurred TO DATE Most recent estimate of the TOTAL COST OF THE PROJECT = 1,169,000 1,169,000 = 100.0% Revenue Recognition = (% complete * Total Contract Revenue) - Revenue Prev Recognized = 100.0% * 1,500,000 - 1,090,793 = 409,207 Q6 dr BOC 1,500,000 cr PIP 1,500,000 - to record the cash receipts for the year

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