Reference no: EM132546217

Point 1: In 2020, Pharoah Contractors began construction on an office building. The building was expected to cost $47,620,000 in total, and was expected to be completed in early 2022. The customer was to pay Pharoah $50,710,000 for the building. Pharoah was able to use percentage-of-completion accounting for the project, and at the end of 2020 had accumulated $11,905,000 in cost. Pharoah estimated that the costs to complete the construction were in line with the original expected total costs.

Point 2: During 2021, there was a lumber shortage, a strike by construction workers, and various other incidents that dramatically raised costs in the construction industry. As a result, at the end of 2021, Pharoah estimated that the office building would cost an additional $51,680,000 more than originally estimated. To the end of 2021, Pharoah had spent $39,276,800 on constructing the office building.

Question 1: Calculate the revenue to be recognized by Pharoah for the 2021 fiscal year.

Question 2: Prepare the journal entry to record revenue, construction expenses.