Buildings Ltd

question 97

Essay

Buildings Ltd.is constructing a residential building in downtown Vancouver for a contract price of $15,000,000.Costs for this contract were initially estimated to be $12,000,000.The company uses the percentage of completion method of revenue recognition,using the cost-to-cost method of estimating the percentage complete.The following information is available:

Required:
a.Calculate the amount of gross profit to be recognized in each year.Show computations in good form.
b.Calculate the amount of revenue to be recognized in Year 2.
c.Prepare all the journal entries required in Year 2.
d.Prepare the journal entry required in Year 3 to acknowledge completion and acceptance of the project.

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Definitions:

Principal Payment

A payment towards the original amount of a loan, not including interest.

Warranty Repairs

Services offered to fix or replace defective products within a specified period, as guaranteed by the warranty terms.

Contingency Loss

A potential financial loss that may occur in the future due to uncertain events or conditions.