Question :
In the year 2009, the Malinkrodt Construction Company entered into a contract to build a road for Dade County for $15,000,000. The road was completed in 2011. Information associated to the contract is as follows:
2009 2010 2011
Costs incurred during the year $4,000,000 $4,800,000 $4,200,000
Estimated costs to complete as of year-end 8,000,000 4,000,000 -
Billings during the year 3,500,000 5,000,000 6,500,000
Cash collections during the year 2,800,000 5,600,000 6,600,000
Malinkrodt uses the percentage-of-completion technique of accounting for long-term construction contracts.
Required:
1. Determine the amount of gross profit to be recognized in each of the three years.
2. Prepare all required journal entries for each of the years (credit "Various accounts" for construction costs incurred).
3. Purpose a partial balance sheet for 2009 and 2010 showing any items related to the contract.
4. Compute the amount of gross profit to be recognized in each of the three years considers the following costs incurred and costs to complete information:
2009 2010 2011
Costs incurred during the year $4,000,000 $4,200,000 $7,200,000
Estimated costs to complete as of year-end 8,000,000 7,100,000