Scribd
Upload
49 views6 pages

Part A: Total Revenue Recognized Total Cost Incurred Net Gross Profit

The document discusses the percentage of completion method used by Big Construction Company to recognize revenue over 3 years from 2019 to 2021. It shows the company's statement of income and general journal entries for the period. The percentage of completion formula is used to calculate recognized revenue based on the cost of goods completed. The total expected revenue for the project is $10 million and the total estimated cost is $8 million, resulting in an expected net gross profit of $2 million.

Uploaded by

Yusef Shaqeel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
49 views6 pages

Part A: Total Revenue Recognized Total Cost Incurred Net Gross Profit

The document discusses the percentage of completion method used by Big Construction Company to recognize revenue over 3 years from 2019 to 2021. It shows the company's statement of income and general journal entries for the period. The percentage of completion formula is used to calculate recognized revenue based on the cost of goods completed. The total expected revenue for the project is $10 million and the total estimated cost is $8 million, resulting in an expected net gross profit of $2 million.

Uploaded by

Yusef Shaqeel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 6

“WEEK 7”

PART A

The method used to calculate the gross profit is “percentage of completion method”

Big Construction Company

Statement of Income

For the year ended December 2021

2019 2020 2021

Total Revenue Recognized $3.125 million $5 million $1.875 million

Total cost incurred $2.5 million $4 million $1.5 million

Net Gross Profit $0.625 million $1 million $0.375 million

For the recognition of revenue, the following formula is used:

Sales Recognized = Cost of goods completed and delivered / total COG to be delivered x Total

revenue that is expected

Calculation of Recognized Revenue

The year 2019 = 2.5 million dollars / 8 million dollars x 10 million dollars

= 0.3125 million dollars x 10 million dollars

= 3.125 million dollars


The year 2020 = 4 million dollars / 8 million dollars x 10 million dollars

= 0.5 million dollars x 10 million dollars

= 5 million dollars

The year 2021 = 1.5 million dollars / 8 million dollars x 10 million dollars

= 0.1875 million dollars x 10 million dollars

= 1.875 million dollars

PART B

Big Construction Company

General Journal

Year 2019

Cost incurred:

Debit: Construction-In-Progress $2.5 million

Credit: Cash $2.5 million

Payments Received:

Debit: Cash $2 million

Credit: Account Receivable $2 million

Revenue Adjustments:
Debit: Expense of the Construction $2.5 million

Construction-In-Progress $0.625 million

Credit: Sales Revenue $3.125 million

Year 2020

Cost incurred:

Debit: Construction-In-Progress $4 million

Credit: Cash $4 million

Payments Received:

Debit: Cash $5 million

Credit: Account Receivable $5 million

Revenue Adjustments:

Debit: Expense of the Construction $4 million

Construction-In-Progress $1 million

Credit: Sales Revenue $5 million

Year 2021

Cost incurred:

Debit: Construction-In-Progress $1.5 million


Credit: Cash $1.5 million

Payments Received:

Debit: Cash $3 million

Credit: Account Receivable $3 million

Revenue Adjustments:

Debit: Expense of the Construction $1.5 million

Construction-In-Progress $0.375 million

Credit: Sales Revenue $1.875 million

Project Completion:

Debit: Billing $10 million

Credit: Construction-In-Progress $10 million

PART C

Calculation of net G.P:

= Total expected Revenue – Total incurring cost

= 10 million dollars – 8 million dollars

= 2 million dollars

Big Construction Company


General Journal

Year 2019

Cost incurred:

Debit: Construction-In-Progress $2.5 million

Credit: Cash $2.5 million

Payments Received:

Debit: Cash $2 million

Credit: Account Receivable $2 million

Year 2020

Cost incurred:

Debit: Construction-In-Progress $4 million

Credit: Cash $4 million

Payments Received:

Debit: Cash $5 million

Credit: Account Receivable $5 million

Year 2021

Cost incurred:
Debit: Construction-In-Progress $1.5 million

Credit: Cash $1.5 million

Payments Received:

Debit: Cash $3 million

Credit: Account Receivable $3 million

Recognition of the revenue:

Debit: Billings $10 million

Credit: Sales Revenue (Construction) $10 million

CIP expense out:

Debit: Construction cost $8 million

Credit: Construction-In-Progress $8 million

You might also like