Explanation Transaction Price: Transaction price refers to the price that a corporation receives or expects to receive in the future for the goods and services provided. Percentage of Completion Method: Percentage of completion method recognizes revenue for the completed part of the project. This method is used when the contract spans for multiple accounting period like construction projects. Journal entry for the 2018: Entry for actual cost incurred Date Account Title and Explanation Post. ref. Amount ($) Amount ($) Construction in progress 2,625,000 Cash 2,625,000 (To record cost of construction) Table (1) Construction in progress account is the asset account because completion of the work increases the assets of the company that is why it is debited. Cash account is the assets account. Since, the cash has been paid to the suppler and worker due to which cash of the company is decreasing that is why cash accounts will credit. Journal entry for billing Date Account Title and Explanation Post. Ref. Amount ($) Amount ($) Account receivables 2,400,000 Billing in receivable 2,400,000 (To record billing) Table (2) Accounts receivable is the assets account. Since, during the construction account receivable is received which increase the assets of the company that is why it is debited Billing in receivable is decreasing due to which assets of the company are decreasing that is why it will be credited. Journal entry of cash collection Date Account Title and Explanation Post. Ref. Amount ($) Amount ($) Cash 2,000,000 Account receivables 2,000,000 (To record cash received) Table (3) Cash account is the asset account as the cash has been received due to which assets of the company increased that is why cash account is debited. Account receivable is the assets account and the account receivable is decreasing that is why it is credited. Journal entry for the revenue and gross profit Date Account Title and Explanation Post. Ref. Amount ($) Amount ($) Construction cost 2,625,000 Revenue on long term contract 2,625,000 (To record gross profit) Table (4) Construction cost account is the expense account. Since, the expense of the company is increased that is why the construction cost account is debited. Revenue on long term contract is the real account. Since, the revenue of the company increased that is why it will be credited. Journal entry for 2019: Entry for actual cost incurred Date Account Title and Explanation Post. ref. Amount ($) Amount ($) Construction in progress 900,000 Cash 900,000 (To record cost of construction) Table (1) Construction in progress account is the asset account because completion of the work increases the assets of the company that is why it is debited...

3rd Edition

ISBN: 9780136946601

Author: GORDON

Publisher: PEARSON

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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…

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Chapter 8, Problem 8.14E

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To prepare: The journal entry for the each year of contract.

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Chapter 8, Problem 8.13E

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Chapter 8 Solutions

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The journal entry for the each year of contract.

Solution Summary: The author explains the Percentage of Completion method, which recognizes revenue for the completed part of the project.

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To prepare: The journal entry for the each year of contract.

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Chapter 8 Solutions