Question

MSK Construction Company contracted to construct a factory building for $525,000. Construction started during 20X1 and was completed in 20x2. Information relating to the contract follows: 20x1 20x2 Costs incurred during the year $299,000 $ 150,000 Estimated additional cost to complete 15,000 Billings during the year @, eee 265,000 Cash collections during the year 240, eee 285,000 Required: 1. Record the preceding transactions in MSK's books assuming it recognizes revenue over time and uses costs incurred to measure the extent to which its performance obligation has been satisfied. 2. Record the preceding transactions in MSK's books assuming it recognizes revenue at a point in time when control of the completed foctory is transferred to the customer at the end of the project. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Record the preceding transactions in MSK's books assuming It recognizes revenue over time and uses costs urred to m extent to which its performance obligation has been satisfied. (If no entry is required for a transaction/evenelect "Noi required in the first account field.) View transaction lit

Answer 1

1. Journal Entries when revenue is recognise over time.
Year	General Journal	Debit	Credit
20X1	Construction in Progress	290000
	Cash Payable, material, payable etc.		290000
20X1	Accounts Receivables	260000
	Billings on contract		260000
20X1	Cash	240000
	Accounts Receivables		240000
20X1	Construction in Progress	60000
	Constructin Expense	290000
	Construction revenue		350000
20X2	Construction in Progress	150000
	Cash Payable, material, payable etc.		150000
20X2	Accounts Receivables	265000
	Billings on contract		265000
20X2	Cash	285000
	Accounts Receivables		285000
20X2	Construction in Progress	25000
	Constructin Expense	150000
	Construction revenue		175000
20X2	Billings on contract	525000
	Construction in progress		525000

2. Journal Entries when revenue is recognise at a point in time
Year	General Journal	Debit	Credit
20X1	Construction in Progress	290000
	Cash Payable, material, payable etc.		290000
20X1	Accounts Receivables	260000
	Billings on contract		260000
20X1	Cash	240000
	Accounts Receivables		240000
20X1	-No Entry-
	Since the project is incomplete
	No revenue is to be recognised
20X2	Construction in Progress	150000
	Cash Payable, material, payable etc.		150000
20X2	Accounts Receivables	265000
	Billings on contract		265000
20X2	Cash	285000
	Accounts Receivables		285000
20X2	Billings on contract	525000
	Constructin Expense	440000
	Construction revenue		525000
	Construction in progress		440000

	20X1	20X2
Contract Price (a)	525000	525000
Less: Estimated Cost
Costs incurred to date	290000	150000
Estimated costs to complete	145000	0
Estimated total costs (b)	435000	150000
Estimated gross profit (a-b)	90000	375000
% of completion	66.67%	100.00%
(Cost incurred till date / Total costs)
Gross profit earned	60000	375000
Less: Gross profit earned in previous year	0	60000
Gross profit recognised	60000	315000
Construction Revenue	350000	525000
Construction Revenue to be recognised over time	350000	175000
Construction Revenue to be recognised at a point in time	0	525000