Revenue Recognition Under Construction Contract by ycz20868

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									   Acct 414                                                  7/25/2011                                     Prof. Teresa Gordon

5-yr Example - Construction Accounting (with loss)

Colfax Construction Corporation (CCC) has contracted to build 100 miles of highway through a rugged mountain area. The
project will take five years to complete. The contract price is $50,000,000. CCC can bill the State of Washington during
construction on a formula basis. Both parties are expected to fulfill their obligations under the contract.

Total contract revenue:            50,000,000
                                     2010             2011              2012        2013           2014            Totals
Construction costs incurred
during year                         3,400,000        15,500,000     16,300,000    10,700,000       7,100,000     53,000,000
Progress billings for yr            1,500,000        14,500,000     17,000,000    13,000,000       4,000,000     50,000,000
Collections during year             1,000,000        14,750,000     16,500,000    13,500,000       4,250,000     50,000,000
Est costs to complete              30,600,000        16,100,000      8,800,000     8,100,000               0

                                     2010             2011              2012        2013           2014
Cost incurred to-date
Estimated total cost

Percentage of completion


Construction revenue to-date
Construction revenue for year
Construction cost for year
Gross profit for year
Gross profit recognized to-date




   2609a2b0-cfa1-4503-b2fb-7f32dba7480f.xls                       -1-                                                  Problem
    Acct 414                                                                   7/25/2011                                                 Prof. Teresa Gordon

Example for Class - with loss on contract in last 2 years
JOURNAL ENTRIES                                           2010              2011                       2012               2013                      2014
PERCENTAGE OF COMPLETION METHOD                   DR             CR    DR          CR            DR           CR     DR          CR          DR            CR
Construction in Progress
 Accts Pay, Cash, etc.

Accounts Receivable
  Partial Billings

Cash
 Accounts Receivable

Construction Costs
Construction in Progress
 Construction Revenue

Closing Entry
Partial Billings
 Construction in Progress




T-accounts                                  Construction in progress                Partial billings               Accounts Receivable




    2609a2b0-cfa1-4503-b2fb-7f32dba7480f.xls                                       -2-                                                            JEs-% blank
     Acct 414                                                                                   7/25/2011                                                                Prof. Teresa Gordon

Example for Class - with loss on contract in last 2 years
JOURNAL ENTRIES                                             2010                        2011                            2012                         2013                        2014
Completed Contract Method (US GAAP only)             DR             CR          DR              CR               DR             CR           DR              CR           DR             CR
Construction in Progress                            3,400,000            -     15,500,000             -        16,300,000             -     10,700,000             -     7,100,000            -
 Accts Pay, Cash, etc.                                    -        3,400,000          -        15,500,000             -        16,300,000          -        10,700,000         -        7,100,000
                                                          -              -            -               -               -               -            -               -           -              -
Accounts Receivable                                 1,500,000            -     14,500,000             -        17,000,000             -     13,000,000             -     4,000,000            -
  Partial Billings                                        -        1,500,000          -        14,500,000             -        17,000,000          -        13,000,000         -        4,000,000
                                                          -              -            -               -               -               -            -               -           -              -
Cash                                                1,000,000            -     14,750,000             -        16,500,000             -     13,500,000             -     4,250,000            -
 Accounts Receivable                                      -        1,000,000          -        14,750,000             -        16,500,000          -        13,500,000         -        4,250,000

Estimated loss on construction contract
 Construction in progress

Closing Entry
Partial Billings
 Construction revenue
Construction costs
 Construction in progress



T-accounts                                      Construction in progress                          Partial billings                          Accounts Receivable




     2609a2b0-cfa1-4503-b2fb-7f32dba7480f.xls                                                        -3-                                                                       JEs-CC-blank
     Acct 414                                                                                   7/25/2011                                                                Prof. Teresa Gordon

Example for Class - with loss on contract in last 2 years
JOURNAL ENTRIES                                             2010                        2011                            2012                         2013                        2014
Zero profit method (IFRS only)                       DR             CR          DR              CR               DR             CR           DR              CR           DR             CR
Construction in Progress                            3,400,000            -     15,500,000             -        16,300,000             -     10,700,000             -     7,100,000            -
 Accts Pay, Cash, etc.                                    -        3,400,000          -        15,500,000             -        16,300,000          -        10,700,000         -        7,100,000
                                                          -              -            -               -               -               -            -               -           -              -
Accounts Receivable                                 1,500,000            -     14,500,000             -        17,000,000             -     13,000,000             -     4,000,000            -
  Partial Billings                                        -        1,500,000          -        14,500,000             -        17,000,000          -        13,000,000         -        4,000,000
                                                          -              -            -               -               -               -            -               -           -              -
Cash                                                1,000,000            -     14,750,000             -        16,500,000             -     13,500,000             -     4,250,000            -
 Accounts Receivable                                      -        1,000,000          -        14,750,000             -        16,500,000          -        13,500,000         -        4,250,000

Construction Costs
Construction Revenues




Closing Entry
Partial Billings
 Construction revenue
Construction costs
 Construction in progress



T-accounts                                      Construction in progress                          Partial billings                          Accounts Receivable
                                           0




     2609a2b0-cfa1-4503-b2fb-7f32dba7480f.xls                                                        -4-                                                                 JEs-ZeroProfit-blank

								
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