Prepare the journal entries to record costs and billings

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Question - At the beginning of 2013, the Harding Construction Company received a contract to build an office building for $5,000,000. The project is estimated to take three years to complete. According to the contract, Harding will bill the buyer in installments over the construction period according to a prearranged schedule. Information related to the contract is as follows:

 

2013

2014

2015

Construction costs incurred during the year

$1,500,000

$1,260,000

$2,440,000

Estimated costs to complete at end of year

$2,250,000

$2,340,000

-0-

Billings made during the year

$1,200,000

$2,000,000

$1,800,000

Cash collections during the year

$1,000,000

$1,400,000

$2,600,000

Required -

A. Prepare the journal entries to record costs, billings, and cash receipts (not gross profit) for each year.

B. Prepare the journal entries to record gross profit for each year using the percentage of completion method.

C. Prepare the journal entries to record gross profit for each year using the completed contract method.

D. Under the percentage of completion method, what does the company report in terms of the difference between Construction in progress (CIP) and Billings in its 2014 balance sheet for this contract?

Reference no: EM132465426

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