Tutorial 5 Question 1 Solution

Costs Contract Price

2018 $ 4,000,000 Less Estimated Cost:
2019 $ 8,000,000 Cost to date
2020 $ 5,500,000 Estimated cost to complete
$ 17,500,000 Estimated total cost
Billings
2018 $ 4,500,000 Estimated total gross profit
2019 $ 8,500,000 Percentage Complete
2020 $ 7,000,000
$ 20,000,000
Gross Profit recognized in:
2018 $ 571,429

2019 $ 1,142,857

2020 $ 785,714
$ 2,500,000
Solution
2018 2019 2020
$ 20,000,000 $ 20,000,000 $ 20,000,000

$ 4,000,000 $ 12,000,000 $ 17,500,000

$ 13,500,000 $ 5,500,000 $ -
$ 17,500,000 $ 17,500,000 $ 17,500,000

$ 2,500,000 $ 2,500,000 $ 2,500,000

23% 69% 100%
 Journal Entries
Stage of completion can be reliably estimated

1 2018
Record cost of construction
Dr. Cr
Construction in progress $ 4,000,000
Materials, cash payables, accumulated depreciation etc $ 4,000,000

2 Record progress billings

Accounts receivable $ 4,500,000
Construction in progress $ 4,500,000

3 Record collection of billings

Cash $ 4,500,000
Accounts receivable $ 4,500,000

4 Recognise contract revenue & contract expensees

Construction in progress $ 571,429
Construction expenses $ 4,000,000
Revenue from long term project $ 4,571,429
ries
reliably estimated

2019 2020
Dr. Cr Dr. Cr
$ 8,000,000 $ 5,500,000
$ 8,000,000 $ 5,500,000

$ 8,500,000 $ 7,000,000
$ 8,500,000 $ 7,000,000

$ 8,500,000 $ 7,000,000
$ 8,500,000 $ 7,000,000

$ 1,142,857 $ 785,714
$ 8,000,000 $ 5,500,000
$ 9,142,857 $ 6,285,714
 Journal Entries
Stage of completion cannot be reliably estimated

1 2018
Record cost of construction
Dr. Cr
Construction in progress $ 4,000,000
Materials, cash payables, accumulated depreciation etc $ 4,000,000

2 Record progress billings

Accounts receivable $ 4,500,000
Construction in progress $ 4,500,000

3 Record collection of billings

Cash $ 4,500,000
Accounts receivable $ 4,500,000

4 Recognise contract revenue & contract expensees

Construction expenses $ 4,000,000
Revenue from long term project $ 4,000,000

5 Record the profit on the project

Construction in progress -
Revenue from long term project -
ries
be reliably estimated

2019 2020
Dr. Cr Dr. Cr
$ 8,000,000 $ 5,500,000
$ 8,000,000 $ 5,500,000

$ 8,500,000 $ 7,000,000
$ 8,500,000 $ 7,000,000

$ 8,500,000 $ 7,000,000
$ 8,500,000 $ 7,000,000

$ 8,000,000 $ 5,500,000
$ 8,000,000 $ 5,500,000

- $ 2,500,000
- $ 2,500,000