In 2019, Richard Corp signed a contract valued at $1M. It was estimated that $750K would be required to complete the work requested. In 2019, a total of $100K in costs had been accumulated. In 2020, the area in which the work was performed received an unexpected ice storm that knocked out power for two weeks. This caused the total estimated costs to complete the project to increase to $1.2M due to contingencies placed within the contract. An additional $500K costs was accumulated during 2020. Prepare the journal entries required in 2019 and 2020.

In 2019, Richard Corp signed a contract valued at $1M. It was estimated that $750K would be required to complete the work requested. In 2019, a total of $100K in costs had been accumulated. In 2020, the area in which the work was performed received an unexpected ice storm that knocked out power for two weeks. This caused the total estimated costs to complete the project to increase to $1.2M due to contingencies placed within the contract. An additional $500K costs was accumulated during 2020. Prepare the journal entries required in 2019 and 2020.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 9MC

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During 2019, Ryel Companys controller asked you to prepare correcting journal entries for the following three situations: 1. Machine A was purchased for 50,000 on January 1, 2014. Straight-line depreciation has been recorded for 5 years, and the Accumulated Depreciation account has a balance of 25,000. The estimated residual value remains at 5,000, but the service life is now estimated to be 1 year longer than estimated originally. 2. Machine B was purchased for 40,000 on January 1, 2017. It had an estimated residual value of 5,000 and an estimated service life of 10 years. it has been depreciated under the double-declining-balance method for 2 years. Now, at the beginning of the third year, Ryel has decided to change to the straight-line method. 3. Machine C was purchased for 20,000 on January 1, 2018, Double-declining-balance depreciation has been recorded for 1 year. The estimated residual value of the machine is 2,000 and the estimated service life is 5 years. The computation of the depreciation erroneously included the estimated residual value. Required: Prepare any necessary correcting journal entries for each situation. Also prepare the journal entry necessary for each situation to record depreciation expense for 2019.
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