7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.
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Transcript of 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.
![Page 1: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/1.jpg)
7-1
Construction Accounting
Chapter 7Illustrated Solution: Problem 7-32Illustrated Solution: Problem 7-32
![Page 2: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/2.jpg)
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.
![Page 3: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/3.jpg)
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
![Page 4: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/4.jpg)
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
![Page 5: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/5.jpg)
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
![Page 6: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/6.jpg)
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
![Page 7: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/7.jpg)
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
![Page 8: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/8.jpg)
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
![Page 9: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/9.jpg)
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
![Page 10: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/10.jpg)
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
![Page 11: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/11.jpg)
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
![Page 12: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/12.jpg)
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
![Page 13: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/13.jpg)
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
![Page 14: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/14.jpg)
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
![Page 15: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/15.jpg)
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
![Page 16: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/16.jpg)
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
{
![Page 17: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/17.jpg)
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
![Page 18: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/18.jpg)
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
![Page 19: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/19.jpg)
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
![Page 20: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/20.jpg)
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
![Page 21: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/21.jpg)
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
![Page 22: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/22.jpg)
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
![Page 23: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/23.jpg)
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
![Page 24: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/24.jpg)
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
![Page 25: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/25.jpg)
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
![Page 26: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/26.jpg)
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):
![Page 27: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/27.jpg)
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):
![Page 28: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/28.jpg)
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):
![Page 29: 7-1 Construction Accounting Chapter 7 Illustrated Solution: Problem 7-32.](https://reader036.fdocuments.in/reader036/viewer/2022062422/56649e715503460f94b701e1/html5/thumbnails/29.jpg)
7-29
End of ProblemEnd of Problem