a. Explanation Journalizing: Journalizing is the process which includes recording the transaction of an organization in a chronological order. Based on these journal entries recorded, the accounts are posted to the relevant edger account. To increase balance of accounts: Debit assets, expenses, loses and credit all liabilities, capital, revenue and gains. To decrease the balance of accounts: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains. Journal entries to record the contract for year 2018 are as follows: Journal entry that records construction contract is as follows: Date Account Title and Explanation Post ref. Debit ($) Credit ($) 2018 Construction in progress 15,000 Construction cost 15,000 (Being cost of construction contract recorded) Table (1) Construction in progress is an expense for the company, expenses are debited as per the general rule; therefore construction in progress is debited in the journal entry. Construction contract is the liability for the company, and liabilities are credited with increase in their value; therefore construction contract is credited in the journal entry because it increases the value of liability. Journal entry to record the progress billing on construction contract is as follows: Date Account Title and Explanation Post ref. Debit ($) Credit ($) 2018 Accounts receivables 25,000 Billing on construction in progress 25,000 (Being the billing on construction in progress recorded) Table (2) Account receivable is an asset and assets are debited with the increase in their value; therefore accounts receivables are debited in the journal entry because it increases the value of the asset. Billing on construction in progress is income, incomes are credited as er the general rule; therefore billing on construction in progress is credited in the journal entry. Journal entry to record the cash received is as follows: Date Account Title and Explanation Post ref. Debit ($) Credit ($) 2018 Cash 20,000 Account receivables 20,000 (Being cash received recorded) Table (3) Cash is an asset, increase in asset is debited as per the general rule; therefore cash account is debited in the journal entry. Account receivable is also an asset and decrease in the value of asset is credited as per the general rule; payment of cash against the account receivables decreased the value of asset, therefore accounts receivables is credited in the journal entry. Journal entry to record the long term revenue contract is as follows: Date Account Title and Explanation Post ref. Debit ($) Credit ($) 2018 Construction cost 15,000 Long term revenue contract 15,000 (Being long term contract revenue recorded) Table (4) Construction cost is an expense for the company and increase in expense is debited as per the general rule; therefore construction cost is debited in the journal entry. Long-term revenue contract is the income for the company, incomes are credited as per the general rule; therefore long term revenue contract is credited in the journal entry. Journal entries to record the contract for year 2019 are as follows: Journal entry that records construction contract is as follows: Date Account Title and Explanation Post ref. Debit ($) Credit ($) 2019 Construction in progress 20,000 Construction cost 20,000 (Being cost of construction contract recorded) Table (5) Construction in progress is an expense for the company, expenses are debited as per the general rule; therefore construction in progress is debited in the journal entry. Construction contract is the liability for the company, and liabilities are credited with increase in their value; therefore construction contract is credited in the journal entry because it increases the value of liability. Journal entry to record the progress billing on construction contract is as follows: Date Account Title and Explanation Post ref. Debit ($) Credit ($) 2019 Accounts receivables 23,000 Billing on construction in progress 23,000 (Being the billing on construction in progress recorded) Table (6) Account receivable is an asset and assets are debited with the increase in their value; therefore accounts receivables are debited in the journal entry because it increases the value of the asset. Billing on construction in progress is income, incomes are credited as er the general rule; therefore billing on construction in progress is credited in the journal entry. Journal entry to record the cash received is as follows: Date Account Title and Explanation Post ref. Debit ($) Credit ($) 2019 Cash 20,000 Account receivables 20,000 (Being cash received recorded) Table (7) Cash is an asset, increase in asset is debited as per the general rule; therefore cash account is debited in the journal entry... b. To determine To prepare: T-accounts for construction in progress, billing on construction in progress and accounts receivables. c. To determine Net assets or liability for each year.

Intermediate Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText -- Access Card Package (2nd Edition)

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ISBN: 9780134833118

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

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Contract Costing

Contract costing is about tracing particular costs related to a particular contract entered into with the customer. It is one of the forms of job order costing. It is useful in long-term contracts at the most. It is seen that substantial time is required…

Question

Chapter 8, Problem 8.11P

To determine

To prepare: Journal entry to record the contract.

To determine

To prepare: T-accounts for construction in progress, billing on construction in progress and accounts receivables.

To determine

Net assets or liability for each year.

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Chapter 8, Problem 8.10P

Chapter 8, Problem 8.12P

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n January 1, 2021, ABC enters into a contract to construct a building for a customer. ABC identifies its performance obligation to satisfied over time. ABC uses the input method based on costs to measure its progress on the contract. The contract price is P9M Information on the construction is provided below: 2021 2022 2023 a. Contract cost incurred per year 2,760,000 3,540,000 500,000 b. Billing per year 50% 25% 25% c. Collections on billings per year d. Estimated costs to complete (at each yr. end) 4,140,000700,000 90% 90% balance Note: Billings per year are stated as percentages of the contract price. The contract is non-cancellable. The collection on billings in 2021 and 2022 are net of 10% retention. "Retention" is an amount withheld by the contracted and payable to the contractor at the end of the contract when the project is completed and accepted. Requirements; a. Compute for the gross profits, 2021 2022 2023

Pharoah Construction entered into a contract to construct a bridge for a contract price of $2.95 million. Construction began in 2019 and was completed in 2021. Below are the details of the transactions related to the contract: 2019 2020 2021 Costs incurred during the year $649,000 $836,000 $693,900 Estimated costs to complete 1,427,800 515,000 0 Calculate the revenue, expenses and gross profit to be recognized each year using the percentage-of-completion method. (Round the percentage completion to 2 decimal places, e.g. 52.75% and other answers to 0 decimal places, e.g. 1,525.) 2019 2020 2021 Revenue $ $ $ Expenses Gross Profit $ $ $

Contract price of $2,400,000. Estimated. Information relating to the costs and billings for this contract is as follows: 2019 2020 2021 Costs incurred during the year 700,000 1,100,000 750,000 Estimated costs to complete 1,300,000 800,000 Instructions 1- Using the percentage-of-completion method, compute the gross profit or loss to be recognized each year. 2- Using the cost recovery method, compute the gross profit or loss to be recognized each year

Chapter 8 Solutions

Intermediate Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText -- Access Card Package (2nd Edition)

Ch. 8 - What are the primary issues involved in revenue...Ch. 8 - What is the fundamental principle underlying the...Ch. 8 - What is the fundamental principle underlying the...Ch. 8 - Prob. 8.4Q Ch. 8 - Prob. 8.5Q Ch. 8 - How is a performance obligation defined?Ch. 8 - What are the two criteria to define a good or...Ch. 8 - Prob. 8.8Q Ch. 8 - What principles regarding timing and measurement...Ch. 8 - Prob. 8.10Q

Ch. 8 - What is variable consideration and what factors...Ch. 8 - Describe and contrast the two approaches used to...Ch. 8 - Prob. 8.13Q Ch. 8 - What factors should accountants consider to...Ch. 8 - Prob. 8.15Q Ch. 8 - How does a seller account for any consideration...Ch. 8 - Prob. 8.17Q Ch. 8 - What are the two exceptions to the general rule...Ch. 8 - What are the three criteria required to recognize...Ch. 8 - When an entity does not meet the three criteria...Ch. 8 - Prob. 8.21Q Ch. 8 - Prob. 8.22Q Ch. 8 - How does a firm estimate the degree completed...Ch. 8 - Can a firm record inventory out on consignment as...Ch. 8 - What method do agents in a transaction use to...Ch. 8 - Prob. 8.26Q Ch. 8 - What qualitative disclosures do the standards...Ch. 8 - All of the following are elements of a contract...Ch. 8 - Prob. 8.2MC Ch. 8 - Telecom Co. enters into a two-year contract with a...Ch. 8 - The transaction price must reflect the time value...Ch. 8 - Prob. 8.5MC Ch. 8 - When allocating the transaction price to separate...Ch. 8 - Which of the following indicators is not...Ch. 8 - During Yoar 1 Moriwothor Construction Company...Ch. 8 - All of the following are indicators that the...Ch. 8 - Prob. 8.10MC Ch. 8 - Prob. 8.11MC Ch. 8 - Identify a Contract with a Customer. Complete the...Ch. 8 - Prob. 8.2BE Ch. 8 - Identifying Performance Obligations. Perfect Party...Ch. 8 - Identifying Performance Obligations. Perfect Party...Ch. 8 - Estimating Variable Consideration. Gear Garage...Ch. 8 - Estimating Variable Consideration. Using the...Ch. 8 - Estimating Variable Consideration. Sellet...Ch. 8 - Estimating Variable Consideration. Seliet...Ch. 8 - Prob. 8.9BE Ch. 8 - Allocation of Transaction Price. Martin Software...Ch. 8 - Prob. 8.11BE Ch. 8 - Allocation of Transaction Price. Sycamore Sidewalk...Ch. 8 - Allocation of Transaction Price. Sycamore enters...Ch. 8 - Prob. 8.14BE Ch. 8 - Allocation of Transaction Price. Using the...Ch. 8 - When to Recognize Revenue. For each scenario...Ch. 8 - Prob. 8.17BE Ch. 8 - Prob. 8.18BE Ch. 8 - Percentage-of-Completion Method, Journal Entries....Ch. 8 - Prob. 8.20BE Ch. 8 - Sales with the Right of Return. Both incorporated...Ch. 8 - Sales with the Right of Return. Using the...Ch. 8 - Sales Returns. Historically, about 5% or the...Ch. 8 - Sales on Consignment. Hanna Lighting recertify...Ch. 8 - Determining Performance Obligations. Pagit Inc, a...Ch. 8 - Prob. 8.2E Ch. 8 - Estimating Variable Consideration. King Rat Pest...Ch. 8 - Prob. 8.4E Ch. 8 - Prob. 8.5E Ch. 8 - Prob. 8.6E Ch. 8 - Allocation of Variable Consideration. Green-Up Inc...Ch. 8 - Allocation of Variable Consideration. Green-Up Inc...Ch. 8 - Prob. 8.9E Ch. 8 - Prob. 8.10E Ch. 8 - Determination of When to Recognize Revenue. Far...Ch. 8 - Prob. 8.12E Ch. 8 - Percentage-of-Completion Method. Gary Construction...Ch. 8 - Prob. 8.14E Ch. 8 - Prob. 8.15E Ch. 8 - Prob. 8.16E Ch. 8 - Sales with the Right of Return. Webster Hall, Inc....Ch. 8 - Prob. 8.18E Ch. 8 - Prob. 8.19E Ch. 8 - Other Principal Agent Transactions, Net Revenue...Ch. 8 - Prob. 8.1P Ch. 8 - Prob. 8.2P Ch. 8 - Comprehensive Revenue Recognition Problem. Casale...Ch. 8 - Prob. 8.4P Ch. 8 - Determining When to Recognize Revenue. Megrew...Ch. 8 - Prob. 8.6P Ch. 8 - Prob. 8.7P Ch. 8 - Prob. 8.8P Ch. 8 - Percentage-of-Completion Method. R Wayne Computer...Ch. 8 - Prob. 8.10P Ch. 8 - Prob. 8.11P Ch. 8 - Sales on Consignment. Pablo Products. Ltd sells...Ch. 8 - Prob. 1JC Ch. 8 - Prob. 1FSC Ch. 8 - Prob. 1SSC Ch. 8 - Basis for Conclusions Case 1: Control According to...

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Journal entry to record the contract.

Solution Summary: The author explains the process of journalizing, which includes recording the transaction of an organization in a chronological order.

Concept explainers

To prepare: Journal entry to record the contract.

To prepare: T-accounts for construction in progress, billing on construction in progress and accounts receivables.

Net assets or liability for each year.

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Chapter 8 Solutions