Rasher Construction Limited (RCL) entered into a contract to construct a building for $975,000. The contract provided for progress payments. RCL's accountingyear ends December 31. Work began under the contract on August 1, 2017, and was completed on October 31, 2019. Construction activities are summarizedbelow:20172018450,000190,000535,500375,0002019Construction costs incurred during the year 180,000Estimated remaining costs to completeProgress Billings to dateCash Collections to date195,000630,000153,000140,000975,000450,000REQUIRED1. Record RCL's journal entries assuming that the percentage-of-completion method is used. Assume that the percentage of completion is measured by theratio of costs incurred to date divided by total estimated construction costs.2. Complete the following table for RCL using the percentage-of-completion method (as of and for the year ended December 31):201720182019Accounts ReceivableCIP InventoryBillings on ContractCost in excess of billingsConstruction RevenueCosts of ConstructionGross Profit3. How could management of RCL manipulate the accounting for this construction contract in order to achieve its motivation of maximizing net income (e.g. toearn a bigger bonus) in the earlier years?

Date Particulars L/f Debit Credit 2017 Construction in progress $180,000 To…

Rasher Construction Limited (RCL) entered into a contract to construct a building for $975,000. The contract provided for progress payments. RCL's accounting year ends December 31. Work began under the contract on August 1, 2017, and was completed on October 31, 2019. Construction activities are summarized below: 2017 2019 Construction costs incurred during the year Estimated remaining costs to complete Progress Billings to date Cash Collections to date 180,000 630,000 153,000 140,000 2018 450,000 190,000 535,500 375,000 195,000 975,000 450,000 REQUIRED

Rasher Construction Limited (RCL) entered into a contract to construct a building for $975,000. The contract provided for progress payments. RCL's accounting year ends December 31. Work began under the contract on August 1, 2017, and was completed on October 31, 2019. Construction activities are summarized below: 2017 2019 Construction costs incurred during the year Estimated remaining costs to complete Progress Billings to date Cash Collections to date 180,000 630,000 153,000 140,000 2018 450,000 190,000 535,500 375,000 195,000 975,000 450,000 REQUIRED

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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