Completed-Contract Method Exercise handout

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Completed-Contract Method Exercise
Hardhat Construction Company has a contract starting July 20x1 to construct a $4,500,000 bridge that
the company expects to complete in October 20x3. The following costs were determined at the end of
each year during construction:
20x1
Costs to date
20x2
20x3
$1,000,000 $2,916,000 $4,050,000
Estimated cost to complete
Progress billings during the year
Cash Collected during the year
Unknown
Unknown
None
$900,000 $2,400,000 $1,200,000
750,000
1,750,000
2,000,000
a. The appropriate method to account for this contract is ___________________________.
Why?
b. The total profit earned on the contract is $______________________.
c.
The amount of profit that should be recognized each year is:
1. 20x1 $_______________________
2. 20x2 $_______________________
3. 20x3 $_______________________
d. The inventory account balance (Construction in Progress) would include which of the
following?
Cost Incurred Only or Cost Incurred plus Profit Recognized to Date
e. Determine the following year-end account balances for 20x1 and 20x2. For 20x3,
determine the account balances at the end of the contract, closing them out when the
contract is completed.
20x1
20x2
20x3
Construction in process
Billings on long-term contracts
f.
Asset (liability
(at year-end)
None
============ ============
Accounts receivable balance
(at year-end)
None
============ ============
Make the journal entries each year to record the cost incurred, billings, cash collections,
and to recognize profit (loss), if any. Construct T accounts to see if the balances each
year-end correspond to the above.
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