Answer:
1. 2020 $249,400
2021 $90,100
2022 $422,900
2. Dr Construction in process$336,500
Materials,cash, payables etc $336,500
Dr Accounts receivable $603,000
Cr Billings on construction in process $603,000
Dr Cash $545,000
Cr Accounts receivable $547,000
Dr Construction in process ($336,500
Dr Construction expenses $90,100
Cr Revenue from long term contracts $426,600
Step-by-step explanation:
1. Computation for the amount of gross profit to be recognised each year, using percentage of completion method.
2020 2021 2022
Contract price $1,580,000 $1,580,000 $1,580,000
Less: Estimated cost to date ($430,000) ($766,500) ($1,067,000)
Estimated cost to complete (570,000) (328,500) 0
Estimated total costs ($1,000,000) ($1,095,000) ($1,067,000)
Estimated gross profit $580,000 $485,000 $513,000
($1,580,000-$1,000,000=$580,000)
($1,580,000-$1,095,000=$485,000)
($1,580,000-$1,067,000=$513,000)
Percentage completed 43% 70% 100%
($430,000/1,000,000=43%)
($766,500/$1,095,000=70%)
($1,067,000/$1,067,000=100%)
Revenue recognised in prior year - $249,400 $90,100
(43%*$580,000=$249,400)
($339,500-$249,400=$90,100)
Total revenue recognised $249,400 $339,500 $513,000
(70%*$485,000=$339,500)
Gross profit recognised $249,400 $90,100 $422,900
($513,000-$99,100=$422,900)
Therefore Gross profit recognized are :
Gross profit recognized in 2020 $249,400
Gross profit recognized in 2021 $90,100
Gross profit recognized in 2022 $422,900
2. Preparation of all necessary journal entries for 2020,2021,2022
Dr Construction in process($766,500-430,000) $336,500
Materials,cash, payables etc $336,500
(To record cost of construction)
Dr Accounts receivable(900,000-297,000) $603,000
Cr Billings on construction in process $603,000
(To record process Billings)
Dr Cash(817,000-272,000) $545,000
Cr Accounts receivable $547,000
(To record collections)
Dr Construction in process ($766,500-430,000) $336,500
Dr Construction expenses $90,100
Cr Revenue from long term contracts $426,600
($336,500+$90,100)
(To recognise revenue and gross profit)