Respuesta :
Answer:
Explanation:
a. Gross profit in 2014:
Contract price = $1,600,000
Costs = $400,000 + $600,000 = $1,000,000
400,000/1,000,000= 40%
$1,600,000 - $1,000,000 = $600,000
$600,000*40% = $240,000
Gross profit in 2015:
Contract price = $1,600,000
Costs = $825,000 + $275,000 = $1,100,000
825,000/1,100,000= 75%
$1,600,000 - $1,100,000 = $500,000
$500,000*75% = $375,000
Gross profit = 375,000 - 240,000 = $135,000
Gross profit in 2016:
Contract price = $1,600,000
Costs = $1070,000
$1,600,000 - $1,070,000 = $530,000
Gross profit = 530,000 - 240,000 - 135,000 = $155,000
b.
Journal entries:
Dr Construction in process 425,000
Cr Materials, Cash, Payables, etc 425,000
*($825,000 -400,000)
Dr Accounts Receivable 600,000**
Cr Billing on construction in process 600,000
**($ 900,000-300,000)
Dr Construction expenses 425,000
Dr Construction in Process 135,000
Cr Revenue from Long-Term Contracts 560,000***
***(1,600,000 x (75% - 40%))
c.
2014 $0
2015 $0
2016 $530,000
Gross Profit Recognized in 2016:
Gross profit $1,600,000-1070,000 = $530,000
a. The gross profit of each year (by percentage-of-completion method) is:
2014 :$240,000
2015 : $135,000
2016 :$155,000
b. The journal entries are attached in the image below.
c. The gross profit of each year (by completed-contract method) is:
2014 :$0
2015 : $0
2016 :$530,000
Computations:
a.
The formula used to compute gross profit by percentage-of-completion method and the percentage of completion is:
[tex]\text{Gross Profit}=[\text{Contract Price\;-\;Cost}]\times\text{Percentage of Completion}[/tex]
[tex]\text{Percentage of Completion}=\dfrac{\text{Cost Incurred+Estimated Cost for Completing}}{\text{Total Cost}}[/tex]
2014:
[tex]\begin{aligned}\text{Percentage of Completion}&=\dfrac{\$400,000+\$600,000}{\$1,000,000}\\&=40\%\end{aligned}[/tex]
[tex]\begin{aligned}\text{Gross Profit of 2014}&=[\$1,600,000-\$1,000,000]\times40\%\\&=\$240,000\end{aligned}[/tex]
2015:
[tex]\begin{aligned}\text{Percentage of Completion}&=\dfrac{\$825,000+\$275,000}{\$1,100,000}\\&=75\%\end{aligned}[/tex]
[tex]\begin{aligned}\text{Gross Profit of 2015}&=[\$1,600,000-\$1,100,000]\times75\%\\&=\$135,000\end{aligned}[/tex]
2016:
[tex]\begin{aligned}\text{Gross Profit of 2015}&=[\$1,600,000-\$1,070,000]\\&=\$530,000-\$240,000-\$135,000\\&=\$155,000\end{aligned}[/tex]
c. There will be zero profit for 2014 and 2015 from the completed-contract method as the contract is not yet completed but the profit for 2016 will be $530,000 that is contract price less actual cost.
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