Question

Suncoast Construction Company began work on a $900,000 construction contract in 2017. During 2017, Suncoast incurred costs of $380,000, billed its customer for $300,000, and collected $220,000. At December 31, 2017, the estimated future costs to complete the project total $570,000. Prepare Archer's journal entry to record profit or loss, if any, using (a) the percentage-of-completion method and (b) the completed-contract method.

Answer 1

Total estimated costs = Suncoast incurred costs + estimated future costs

= $380,000 + $570,000

= $950,000

Contract price = $900,000

Loss = Total estimated costs - Contract price

= $950,000 - $900,000

= $50,000

The project is unprofitable.

`Percentage\ of\ completion\ method=(Costs\ incurred)/(Total\ estimated\ costs)`

`Percentage\ of\ completion\ method=(380,000)/(950,000)`

= 0.4

= 40%

Construction revenue in 2017 = contract price × percent complete

= $900,000 × 40%

= $360,000

The entire loss is recognized under two methods for an unprofitable project.

The journal entries are as follows:

(a) Construction expense A/c Dr. $410,000

To Construction in process $50,000

To Construction Revenue $360,000

(To record entire loss on overall unprofitable contract)

(b) Loss from contract A/c Dr. $50,000

To Construction in process $50,000

(To record entire loss on overall unprofitable contract)