If billings on a contract exceed costs incurred plus

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customer for that portion of work completed but not yet billed. If billings on a contract exceed costs incurred plus estimated profits, this net figure is shown as a current liability, which means that the contractor has overbilled the customer for work done to date and must complete the work represented by the excess billings. Under the completed-contract method, the treatment of excess costs and billings is the same as under the percentage-of-completion method except that estimated profits are not computed because profit recognition is deferred until a contract is completed. The excess of costs over related billings on a contract is a current asset while the excess of billings over related costs on a contract is a current liability. Ex. 18-124 —Journal entries—percentage-of-completion. Dixon Construction Company was awarded a contract to construct an interchange at the junction of U.S. 94 and Highway 30 at a total contract price of $8,000,000. The estimated total costs to complete the project were $6,000,000. Instructions (a) Make the entry to record construction costs of $3,600,000, on construction in process to date. (b) Make the entry to record progress billings of $2,000,000. (c) Make the entry to recognize the profit that can be recognized to date, on a percentage-of- completion basis. 18 - 36
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Revenue Recognition Solution 18-124 (a) Construction in Process ................................................................ 3,600,000 Materials, Cash, Payables, Etc ......................................... 3,600,000 (b) Accounts Receivable .................................................................... 2,000,000 Billings on Construction in Process ................................... 2,000,000 (c) Construction Expenses ................................................................. 3,600,000 Construction in Process (60% complete) ...................................... 1,200,000 Revenue from Long-Term Contracts ................................. 4,800,000 Ex. 18-125 —Percentage-of-completion method. Dalton Construction Co. contracted to build a bridge for $5,000,000. Construction began in 2010 and was completed in 2011. Data relating to the construction are: 2010 2011 Costs incurred $1,650,000 $1,375,000 Estimated costs to complete 1,350,000 Dalton uses the percentage-of-completion method. Instructions (a) How much revenue should be reported for 2010? Show your computation. (b) Make the entry to record progress billings of $1,650,000 during 2010. (c) Make the entry to record the revenue and gross profit for 2010. (d) How much gross profit should be reported for 2011? Show your computation. Solution 18-125 (a) $1,650,000 ————— × $5,000,000 = $2,750,000 $3,000,000 (b) Accounts Receivable .................................................................... 1,650,000 Billings on Construction in Process .................................. 1,650,000 (c) Construction Expenses ................................................................. 1,650,000 Construction in Process ................................................................ 1,100,000 Revenue from Long-Term Contracts ................................. 2,750,000 18 - 37
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Test Bank for Intermediate Accounting, Thirteenth Edition Solution 18-125 (cont.) (d) Revenue $5,000,000 Costs 3,025,000 Total gross profit 1,975,000 Recognized in 2010 (1,100,000 ) Recognized in 2011 $ 875,000 Or Total revenue $5,000,000 Recognized in 2010 (2,750,000 ) Recognized in 2011 2,250,000 Costs in 2011 (1,375,000 ) Gross profit in 2011 $ 875,000 Ex. 18-126 —Percentage-of-completion method. Penner Builders contracted to build a high-rise for $14,000,000. Construction began in 2010 and is expected to be completed in 2013. Data for 2010 and 2011 are: 2010 2011 Costs incurred to date $1,800,000 $5,200,000 Estimated costs to complete 7,200,000 4,800,000 Penner uses the percentage-of-completion method.
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