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Agreement to Construct an Office Building

16. In 2011, Fayette Engineering entered into an agreement to construct an office building at a contract price of $5,100,000. Construction data were as follows:

2011 2012 2013
Construction costs
incurred $ 750,000 $2,700,000 $ 630,000
Estimated costs to
complete 3,000,000 862,500 --
Progress billings 570,000 3,600,000 930,000
Collections from client 450,000 3,300,000 1,350,000

Prepare the necessary entries for 2011, assuming the firm uses the percentage of completion method:

17. (4 points) Kamus Medical Center uses the cost recovery method of accounting for recognizing revenue. The following information is available:

2011 2012 2013
Sales ................... $45,000 $60,000 $85,000
Gross profit percentage . 37% 41% 40%
Cash collections:
2011 ................. $24,000 $19,000 $ 2,000
2012 ................. 40,000 17,000
2013 ................. 53,000

Determine the amount of gross profit to be recognized for 2011 and 2012

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ANSWERS

Question 16
DR: Construction in process 750,000
CR: Various accounts 750,000

DR: Accounts receivable 570,000
CR: Progress billings 570,000

DR: Cash 450,000
CR: Accounts ...

Solution Summary

The expert examines an agreement to construct an office building.

$2.19