Question

Suncoast Construction Company began work on a $900,000 construction contract in 2017. During 2017, Suncoast incurred costs of $380,000, billed its customer for $300,000, and collected $220,000. At December 31, 2017, the estimated future costs to complete the project total $570,000. Prepare Archer's journal entry to record profit or loss, if any, using (a) the percentage-of-completion method and (b) the completed-contract method.

Answer 1

Answer:

Total estimated costs = Suncoast incurred costs + estimated future costs

                                    = $380,000 + $570,000

                                    = $950,000

Contract price = $900,000

Loss = Total estimated costs - Contract price

        = $950,000 - $900,000

        = $50,000

The project is unprofitable.

$Percentage\ of\ completion\ method=\frac{Costs\ incurred}{Total\ estimated\ costs}$

$Percentage\ of\ completion\ method=\frac{380,000}{950,000}$

                                                                   = 0.4

                                                                   = 40%

Construction revenue in 2017 = contract price × percent complete

                                                  = $900,000 × 40%

                                                  = $360,000

The entire loss is recognized under two methods for an unprofitable project.

The journal entries are as follows:

(a) Construction expense A/c          Dr. $410,000

To Construction in process                                       $50,000  

To Construction Revenue                                          $360,000

(To record entire loss on overall unprofitable contract)

(b) Loss from contract A/c       Dr.  $50,000

To Construction in process                             $50,000

(To record entire loss on overall unprofitable contract)