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Spiceland_Inter_Accounting8e_Ch05

268 SECTION 1 The Role of Accounting as an Information System The Contract Does Not Qualify for Recognizing Revenue Over Time 2016 2017 2018 Revenue recognized –0– –0– $8,000,000 Less cost of construction recognized –0– –0– (7,550,000) Gross profit recognized –0– –0– $ 450,000 2. Assuming the contract qualifies for recognizing revenue over time, prepare the necessary summary journal entries for each of the three years to account for construction costs, construction revenue, contract billings, and cash collections, and to close the construction accounts in 2018. 2016 2017 2018 Construction in progress (CIP) ................. 1,500,000 4,500,000 1,550,000 Cash, materials, etc. ............................ 1,500,000 4,500,000 1,550,000 To record construction costs. Construction in progress (CIP) ................. 500,000 50,000 Cost of construction ............................... 1,500,000 1,550,000 Revenue .............................................. 2,000,000 1,600,000 To record revenue and gross profit. Cost of construction ............................... 4,500,000 Revenue .............................................. 4,400,000 Construction in progress (CIP) ............. 100,000 To record revenue and gross loss. Accounts receivable ................................ 1,400,000 5,200,000 1,400,000 Billings on construction contract .......... 1,400,000 5,200,000 1,400,000 To record progress billings. Cash 1,000,000 4,000,000 3,000,000 Accounts receivable ............................ 1,000,000 4,000,000 3,000,000 To record cash collections. Billings on construction contract ............. 8,000,000 Construction in progress (CIP) .............. 8,000,000 To close accounts. 3. Assuming the contract qualifies for recognizing revenue over time, prepare a partial balance sheet for 2016 and 2017 that includes all construction-related accounts. Balance Sheet (End of Year) 2016 2017 Current assets: Accounts receivable $400,000 $1,600,000 Costs and profit ($2,000,000) in excess of billings ($1,400,000) 600,000 Current liabilities: Billings ($6,600,000) in excess of costs and profit ($6,400,000) 200,000


Spiceland_Inter_Accounting8e_Ch05
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