Fat Boys Construction started a fixed price construction job in 2016 with a contract price of $20 million. The unrest in the Middle East during 2016 resulted in unpredicted increases in the price of oil and gas. This resulted in a sharp increase in material costs for the company during that year. By 2017, cost overruns on the project were incurred, however, Fat Boys was able to complete the project in the end of 2018 and remain profitable. The following is information related to the contract: Contract price: $20,000,000 2016 2017 2018 Costs till date $4,000,000 $8,000,000 $12,000,000 Estimated total costs $12,000,000 $12,000,000 $12,000,000 Billings during the year $3,600,000 $5,800,000 $10,600,000 Collections during the year $3,200,000 $5,800,000 $11,000,000 Required: Prepare the percentage completion method and prepare journal entries
Fat Boys Construction started a fixed price construction job in 2016 with a contract price of $20 million. The unrest in the Middle East during 2016 resulted in unpredicted increases in the price of oil and gas. This resulted in a sharp increase in material costs for the company during that year. By 2017, cost overruns on the project were incurred, however, Fat Boys was able to complete the project in the end of 2018 and remain profitable. The following is information related to the contract:
Contract price: $20,000,000
|
|
2016 |
2017 |
2018 |
|
Costs till date |
$4,000,000 |
$8,000,000 |
$12,000,000 |
|
Estimated total costs |
$12,000,000 |
$12,000,000 |
$12,000,000 |
|
Billings during the year |
$3,600,000 |
$5,800,000 |
$10,600,000 |
|
Collections during the year |
$3,200,000 |
$5,800,000 |
$11,000,000 |
Required:
Prepare the percentage completion method and prepare
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