1. Prepare a schedule showing the revenue, cost and gross profit earned each year using thepercentage of completion method, using the engineer’s estimate as a measure ofcompletion.2. Prepare all journal entries required to reflect the contract3. Prepare journal entries for 2020 assuming zero profit method is used. The Lahar Construction Corporation contracted with the City of Pampanga to construct a dam at aprice of 16,000,000. Lahar expects to earn 1,520,000 on the contract. The percentage of completionmethod is to be used and the completion stage is to be determined by estimates made by theengineer. The summary of the data for 2018,2019, and 2020:YEARCOSTESTIMATEDENGINEER'SBILLINGS ONCOLLECTIONSINCURREDCOST TOESTIMATE OFCONTRACTSON BILLINGSCOMPLETEOCOMPLETION20184,600,0004,500,0005,250,0009,640,0005,100,00031%5,000,0006,000,0005,000,0004,500,0005,400,0006,100,000201958%2020100%REQUIRED:1. Prepare a schedule showing the revenue, cost and gross profit earned each year using thepercentage of completion method, using the engineer's estimate as a measure ofcompletion.2. Prepare all journal entries required to reflect the contract3. Prepare journal entries for 2020 assuming zero profit method is used.

Gross Profit:- Gross profit is the fiscal gain of a company after deduction of the costs necessary…

1. Prepare a schedule showing the revenue, cost and gross profit earned each year using the percentage of completion method, using the engineer’s estimate as a measure of completion. 2. Prepare all journal entries required to reflect the contract 3. Prepare journal entries for 2020 assuming zero profit method is used.

1. Prepare a schedule showing the revenue, cost and gross profit earned each year using the percentage of completion method, using the engineer’s estimate as a measure of completion. 2. Prepare all journal entries required to reflect the contract 3. Prepare journal entries for 2020 assuming zero profit method is used.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Contract Costing

Contract costing is about tracing particular costs related to a particular contract entered into with the customer. It is one of the forms of job order costing. It is useful in long-term contracts at the most. It is seen that substantial time is required for the completion of the contract which takes different accounting periods. Thus, it is very much helpful for recognizing the costs associated with it and accounting in their specific accounting periods.

Question

1. Prepare a schedule showing the revenue, cost and gross profit earned each year using the
percentage of completion method, using the engineer’s estimate as a measure of
completion.
2. Prepare all journal entries required to reflect the contract
3. Prepare journal entries for 2020 assuming zero profit method is used.

The Lahar Construction Corporation contracted with the City of Pampanga to construct a dam at a
price of 16,000,000. Lahar expects to earn 1,520,000 on the contract. The percentage of completion
method is to be used and the completion stage is to be determined by estimates made by the
engineer. The summary of the data for 2018,2019, and 2020:
YEAR
COST
ESTIMATED
ENGINEER'S
BILLINGS ON
COLLECTIONS
INCURRED
COST TO
ESTIMATE OF
CONTRACTS
ON BILLINGS
COMPLETEO
COMPLETION
2018
4,600,000
4,500,000
5,250,000
9,640,000
5,100,000
31%
5,000,000
6,000,000
5,000,000
4,500,000
5,400,000
6,100,000
2019
58%
2020
100%
REQUIRED:
1. Prepare a schedule showing the revenue, cost and gross profit earned each year using the
percentage of completion method, using the engineer's estimate as a measure of
completion.
2. Prepare all journal entries required to reflect the contract
3. Prepare journal entries for 2020 assuming zero profit method is used.

Definition Definition Method of recording financial transactions in the book of original entry by debiting and crediting the accounts affected by a transaction using the golden rules of accrual accounting.

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Step 3 : Preparations of journal entries are as follows

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Step 4 : Preparation of the journal entries using zero profit method

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