Question - Recognition of Profit and Entries on Long-Term Contract
On March 1, 2010, Chance Company entered into a contract to build an apartment building. It is estimated that the building will cost $2,000,000 and will take 3 years to complete. The contract price was $3,000,000. The following information pertains to the construction period.
|
|
2010
|
2011
|
2012
|
|
Cost to date
|
$600,000
|
$1,560,000
|
$2,100,000
|
|
Estimated cost to complete
|
$1,400,000
|
$520,000
|
$0
|
|
Progress billings to date
|
$1,050,000
|
$2,000,000
|
$3,000,000
|
|
Cash collected to date
|
$950,000
|
$1,950,000
|
$2,850,000
|
Instructions:
a) Compute the amount of gross profit to be recognized each year assuming the percentage-of-completion method is used.
b) Prepare all necessary journal entries for 2012.
c) Prepare a partial balance sheet for December 31, 2011, showing the balances in the receivables and inventory accounts.