Construction Accounting
The Power Construction Company was the low bidder on a specialized equipment contract. The contract bid was $6,000,000 with an estimated cost to complete the project of $5,300,000. The contract period was 33 months, beginning January 1, 2007. The company uses the cost to cost method to estimate profits. A record of construction activities for the years 2007–2010 follows:
|
|
Actual Cost— |
Progress |
Cash |
|
Year |
Current Year |
Billings |
Receipts |
|
2007 |
$3,400,000 |
$3,200,000 |
$3,000,000 |
|
2008 |
2,550,000 |
2,000,000 |
2,000,000 |
|
2009 |
200,000 |
800,000 |
600,000 |
|
2010 |
0 |
0 |
400,000 |
The estimated cost to complete the contract at the end of each accounting period is:
|
2007 |
$2,100,000 |
|
2008 |
150,000 |
|
2009 |
0 |
Instructions:
1. What are the revenue, cost, and gross profit recognized for each of the years 2007–2009 under the percentage of completion method?
2. Give the journal entries for each of the years 2007–2009 to record the information from (1).
3. Give the journal entries in 2010 to record any collections and to close out all construction accounts.