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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Fender Construction Company receives a contract to construct a building over a period of 3 years for a price of $700,000. The contract represents a single performance obligation that will be satisfied over time. Information relating to the performance of the contract is summarized as follows:

Chapter 17, Problem 7P, Fender Construction Company receives a contract to construct a building over a period of 3 years for

Required:

  1. 1. Prepare journal entries for all 3 years.
  2. 2. Assume that the contract represents a single performance obligation that will be satisfied at a point in time. Prepare journal entries for all 3 years.

1.

To determine

Journalize entries for three years.

Explanation

Contract:

Contract is an agreement among two parties or more parties which includes enforceable obligations and rights. A contract can be written, oral or implied by ordinary business practices.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

  • To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
  • To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.

Prepare journal entries:

DateAccount titles and ExplanationDebit ($)Credit ($)
2021Construction in progress 150,000 
      Accounts payable (inventory, cash, etc) 150,000 
 (To record costs of construction)  
    
 Accounts receivable 120,000 
      Partial billings 120,000 
 (To record partial billings)  
    
 Cash 100,000 
      Accounts receivable 100,000 
 (To record collections)  
    
 Construction expense [Refer to table (2)] 150,000 
 Construction in progress [Refer to table (2)] 60,000 
      Construction revenue [Refer to table (2)] 210,000 
 (To record gross profit recognized)  
    
2020Construction in progress 242,000 
     Accounts payable (inventory, cash, etc) 242,000 
 (To record costs of construction)  
    
 Accounts receivable 250,000 
      Partial billings 250,000 
 (To record partial billings)  
    
 Cash 260,000 
      Accounts receivable 260,000 
 (To record collections)  
    
 Construction expense [Refer to table (2)] 242,000 
 Construction in progress [Refer to table (2)] 38,000 
      Construction revenue [Refer to table (2)] 280,000 
 (To record gross profit recognized)  
    
2019Construction in progress168,000
     Accounts payable (inventory, cash, etc)168,000
(To record costs of construction)
Accounts receivable 330,000 
      Partial billings 330,000 
 (To record partial billings)  
    
 Cash 340,000 
      Accounts receivable 340,000 
 (To record collections)  
    
 Construct...

2.

To determine

Journalize entries assuming that the contract represents a single performance obligation.

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