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Construction Contract
Fexco Construction Company signs a contract on 1 July 2018, agreeing to build a warehouse for ABC Corporation Limited at a contract price of $12 million. Fexco Construction Company estimates that construction costs will be as follows:
2018 $2.5 million
2019 $4.0 million
2020 $2.5 million
The contract provides that ABC Corporation Limited will make payments on 31 December each year as follows:
$2018 $3.5 million
$2019 $4.5 million
$2020 $4.0 million
The contract is completed and accepted on 31 December 2020. Assume that actual costs and cash collections coincide with expectations.
Fexco Construction Company has a financial year ending 31 December.
Required
Problem 1: Provide the journal entries for 2018, 2019 and 2020, assuming that:
(a) The stage of completion can be reliably estimated; and
(b) The stage of completion cannot be reliably estimated.
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