Post on 29-Dec-2015
7-1
Construction Accounting
Chapter 7Illustrated Solution: Problem 7-32Illustrated Solution: Problem 7-32
7-2
Billings and CollectionsBillings and Collections
Billings and Collections do not match up (exactly) with Revenues and Expenses during the construction period.
Construction-In-Process: Think of this account as an inventory account like Work-In-Process. This account will hold our expenditures and our profit during the construction period.
Progress Billings: This account is like a contra-inventory account that offsets Construction-In-Process on the Balance Sheet.
7-3
Part 1Part 1
A = L + OECash Construction in
Progress
Accounts Receivable
Progress Billings on Construction Contracts
Cost of Long-Term Construction
Revenue from Long-Term Contracts
7-4
Part 1Part 1
Cash Construction in Progress
Accounts Receivable
Progress Billings on Construction Contracts
Cost of Long-Term Construction
Revenue from Long-Term Contracts
4,600,000
4,600,000
A = L + OE
7-5
Part 1Part 1
Cash Construction in Progress
Accounts Receivable
Progress Billings on Construction Contracts
Cost of Long-Term Construction
Revenue from Long-Term Contracts
4,600,000
4,600,000
2 5,000,000 2 5,000,000
A = L + OE
7-6
Part 1Part 1
Cash Construction in Progress
Accounts Receivable
Progress Billings on Construction Contracts
Cost of Long-Term Construction
Revenue from Long-Term Contracts
4,600,000
3 4,500,000 4,600,000
2 5,000,000
3 4,500,000
2 5,000,000
A = L + OE
7-7
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
To Date2001
Recognized revenue ($16,000,000 x .31)….. 4,960,000
7-8
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
To Date2001
Recognized revenue ($16,000,000 x .31)….. 4,960,000Cost [($4,600,000 + $9,640,000) x .31]……. 4,414,400
7-9
Part 1Part 1
Cash Construction in Progress
Accounts Receivable
Progress Billings on Construction Contracts
Cost of Long-Term Construction
Revenue from Long-Term Contracts
4,600,000
3 4,500,000 4,600,000
4 4,414,400 4 4,960,000
2 5,000,000
3 4,500,000
2 5,000,000
A = L + OE
7-10
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
To Date2001
Recognized revenue ($16,000,000 x .31)….. 4,960,000Cost [($4,600,000 + $9,640,000) x .31]……. 4,414,400 Gross profit…………………………………… 545,600
7-11
Part 1Part 1
Cash Construction in Progress
Accounts Receivable
Progress Billings on Construction Contracts
Cost of Long-Term Construction
Revenue from Long-Term Contracts
4,600,000
3 4,500,000 4,600,000
4 545,600
4 4,414,400 4 4,960,000
2 5,000,000
3 4,500,000
2 5,000,000
A = L + OE
7-12
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
To Date2001
Recognized revenue ($16,000,000 x .31)….. 4,960,000Cost [($4,600,000 + $9,640,000) x .31]……. 4,414,400 Gross profit…………………………………… 545,600
7-13
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
To Date
Recognized in Prior Years
Recognized in Current
Year2001
Recognized revenue ($16,000,000 x .31)….. 4,960,000 -- 4,906,000 Cost [($4,600,000 + $9,640,000) x .31]……. 4,414,400 -- 4,414,400 Gross profit…………………………………… 545,600 -- 545,600
7-14
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
To Date
Recognized in Prior Years
Recognized in Current
Year2001
Recognized revenue ($16,000,000 x .31)….. 4,960,000 -- 4,906,000 Cost [($4,600,000 + $9,640,000) x .31]……. 4,414,400 -- 4,414,400 Gross profit…………………………………… 545,600 -- 545,600
2002
Recognized revenue ($16,000,000 x .58)…. 9,280,000
7-15
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
To Date
Recognized in Prior Years
Recognized in Current
Year2001
Recognized revenue ($16,000,000 x .31)….. 4,960,000 -- 4,906,000 Cost [($4,600,000 + $9,640,000) x .31]……. 4,414,400 -- 4,414,400 Gross profit…………………………………… 545,600 -- 545,600
2002
Recognized revenue ($16,000,000 x .58)…. 9,280,000 Cost [($4,600,000 + $4,500,000 + $5,100,000) x .58]…………………………… 8,236,000 Gross profit………………………………….. 1,044,000
7-16
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
To Date
Recognized in Prior Years
Recognized in Current
Year2001
Recognized revenue ($16,000,000 x .31)….. 4,960,000 -- 4,906,000 Cost [($4,600,000 + $9,640,000) x .31]……. 4,414,400 -- 4,414,400 Gross profit…………………………………… 545,600 -- 545,600
2002
Recognized revenue ($16,000,000 x .58)…. 9,280,000 4,960,000 Cost [($4,600,000 + $4,500,000 + $5,100,000) x .58]…………………………… 8,236,000 4,414,400 Gross profit………………………………….. 1,044,000 545,600
{
7-17
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
To Date
Recognized in Prior Years
Recognized in Current
Year2001
Recognized revenue ($16,000,000 x .31)….. 4,960,000 -- 4,906,000 Cost [($4,600,000 + $9,640,000) x .31]……. 4,414,400 -- 4,414,400 Gross profit…………………………………… 545,600 -- 545,600
2002
Recognized revenue ($16,000,000 x .58)…. 9,280,000 4,960,000 4,320,000 Cost [($4,600,000 + $4,500,000 + $5,100,000) x .58]…………………………… 8,236,000 4,414,400 3,821,600 Gross profit………………………………….. 1,044,000 545,600 498,400
7-18
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
To Date
Recognized in Prior Years
Recognized in Current
Year2001
Recognized revenue ($16,000,000 x .31)….. 4,960,000 -- 4,906,000 Cost [($4,600,000 + $9,640,000) x .31]……. 4,414,400 -- 4,414,400 Gross profit…………………………………… 545,600 -- 545,600
2002
Recognized revenue ($16,000,000 x .58)…. 9,280,000 4,960,000 4,320,000 Cost [($4,600,000 + $4,500,000 + $5,100,000) x .58]…………………………… 8,236,000 4,414,400 3,821,600 Gross profit………………………………….. 1,044,000 545,600 498,400
2003
Recognized revenue………………………… 16,000,000 Cost (actual cost)……………………………. 14,350,000 Gross profit…………………………………… 1,650,000
7-19
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
To Date
Recognized in Prior Years
Recognized in Current
Year2001
Recognized revenue ($16,000,000 x .31)….. 4,960,000 -- 4,906,000 Cost [($4,600,000 + $9,640,000) x .31]……. 4,414,400 -- 4,414,400 Gross profit…………………………………… 545,600 -- 545,600
2002
Recognized revenue ($16,000,000 x .58)…. 9,280,000 4,960,000 4,320,000 Cost [($4,600,000 + $4,500,000 + $5,100,000) x .58]…………………………… 8,236,000 4,414,400 3,821,600 Gross profit………………………………….. 1,044,000 545,600 498,400
2003
Recognized revenue………………………… 16,000,000 9,280,000 Cost (actual cost)……………………………. 14,350,000 8,236,000 Gross profit…………………………………… 1,650,000 1,044,000
7-20
To Date
Recognized in Prior Years
Recognized in Current
Year2001
Recognized revenue ($16,000,000 x .31)….. 4,960,000 -- 4,906,000 Cost [($4,600,000 + $9,640,000) x .31]……. 4,414,400 -- 4,414,400 Gross profit…………………………………… 545,600 -- 545,600
2002
Recognized revenue ($16,000,000 x .58)…. 9,280,000 4,960,000 4,320,000 Cost [($4,600,000 + $4,500,000 + $5,100,000) x .58]…………………………… 8,236,000 4,414,400 3,821,600 Gross profit………………………………….. 1,044,000 545,600 498,400
2003
Recognized revenue………………………… 16,000,000 9,280,000 6,720,000 Cost (actual cost)……………………………. 14,350,000 8,236,000 6,114,000 Gross profit…………………………………… 1,650,000 1,044,000 606,000
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
Costs and Estimated EarningsIn Excess of Billings and Billings in Excess of
Costs and Estimated EarningsUnder the Percentage-of-Completion Method
7-21
Part 2Part 2
Construction in Progress……… 4,600,000Materials, Labor, Cash, etc. 4,600,000
Accounts Receivable…………. 5,000,000Progress Billings on Construction Contracts…. 5,000,000
Cash……………………………. 4,500,000Accounts Receivable…….. 4,500,000
Cost of Long-Term Construction Contracts…….. 4,414,400Construction in Progress……. 545,600
Revenue From Long-Term Construction Contracts… 4,960,000
2001
7-22
Part 2Part 2
Construction in Progress……… 4,600,000 4,500,000 5,250,000Materials, Labor, Cash, etc. 4,600,000 4,500,000 5,250,000
Accounts Receivable…………. 5,000,000 6,000,000 5,000,000Progress Billings on Construction Contracts…. 5,000,000 6,100,000 5,000,000
Cash……………………………. 4,500,000 5,400,000 6,100,000Accounts Receivable…….. 4,500,000 5,400,000 6,100,000
Cost of Long-Term Construction Contracts…….. 4,414,400 3,821,600 6,114,000Construction in Progress……. 545,600 498,400 606,000
Revenue From Long-Term Construction Contracts… 4,960,000 4,320,000 6,720,000
2001 2002 2003
7-23
Part 2Part 2
Construction in Progress……… 4,600,000 4,500,000 5,250,000Materials, Labor, Cash, etc. 4,600,000 4,500,000 5,250,000
Accounts Receivable…………. 5,000,000 6,000,000 5,000,000Progress Billings on Construction Contracts…. 5,000,000 6,100,000 5,000,000
Cash……………………………. 4,500,000 5,400,000 6,100,000Accounts Receivable…….. 4,500,000 5,400,000 6,100,000
Cost of Long-Term Construction Contracts…….. 4,414,400 3,821,600 6,114,000Construction in Progress……. 545,600 498,400 606,000
Revenue From Long-Term Construction Contracts… 4,960,000 4,320,000 6,720,000
Progress Billings on Construction Contracts……… 16,000,000
Construction in Progress… No entry No entry 16,000,000
2001 2002 2003
7-24
Part 3Part 3
Construction in Progress………………………… 5,250,000Materials, Labor, Cash, etc…………………. 5,250,000
Accounts Receivable…………………………….. 5,000,000Progress Billings on Construction
Contracts……………………………………. 5,000,000
Cash……………………………………………….. 6,100,000Accounts Receivable……………………….. 6,100,000
2003
7-25
Part 3Part 3
Construction in Progress………………………… 5,250,000Materials, Labor, Cash, etc…………………. 5,250,000
Accounts Receivable…………………………….. 5,000,000Progress Billings on Construction
Contracts……………………………………. 5,000,000
Cash……………………………………………….. 6,100,000Accounts Receivable……………………….. 6,100,000
Cost of Long-Term Construction Contracts……. 14,350,000Construction in Progress……………………. 14,350,000
Progress Billings on Construction Contracts….. 16,000,000Revenue From Long-Term Construction
Contracts…………………………………… 16,000,000
2003
7-26
Part 4Part 4
Cost of Long-Term Construction Contracts…….. 4,600,000 4,500,000 5,250,000
2001 2002 2003
The following entry would be the only one different from Part (2):
7-27
Part 4Part 4
Cost of Long-Term Construction Contracts…….. 4,600,000 4,500,000 5,250,000Construction in Progress……. 545,600 498,400 606,000
2001 2002 2003
The following entry would be the only one different from Part (2):
7-28
Part 4Part 4
Cost of Long-Term Construction Contracts…….. 4,600,000 4,500,000 5,250,000Construction in Progress……. 545,600 498,400 606,000
Revenue From Long-Term Construction Contracts… 5,145,600 4,998,400 5,856,000
2001 2002 2003
The following entry would be the only one different from Part (2):
7-29
End of ProblemEnd of Problem