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Flashcards in Long Term Construction Contracts Deck (16)
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1
Q

Computation of Construction in Progress

A

CIP account is only debited for:

Construction expenses PLUS
Current Year Profit

2
Q

Computation of Current Year Contract Costs

A

= % of completion x total estimated costs
or
Construction in Progress - Profit

3
Q

% of Completion =

A

current year costs/total estimated costs to complete

4
Q

Deferred Gross Profit =

A

% of completion x Gross Profit

5
Q

Realized Gross Profit =

A

Collection x % of completion

6
Q

In both Completed Contract and % of Completion Methods, how do you account for current year losses?

A

losses are recognized immediately in full in the year incurred

Loss = Estimated GP - Current year costs

7
Q

In completed contract method, how do you account for the current year’s deferred profit?

A

NO. Do not recognize profit until the construction is 100% complete.
Only recognize losses for the current year.

8
Q

In % of completion method, what is the entry to record current year construction expenses?

A

Construction in Progress

Cash

9
Q

In % of completion method, what is the entry to record current year profit?

A

Construction Expenses
Construction in Progress - Realized GP
Construction Revenue

Construction Revenue = Contract price x % of completion
Construction in progress = % of completion x estimated gross profit

10
Q

Closing Entry for % of completion

A

Billings on LT Contracts

Construction in Progress

11
Q

Closing entry for completed contract method

A

Construction Expenses
Construction in Progress
Billings on LT contracts
Construction Revenue

12
Q

% OF COMPLETION METHOD

JOURNAL ENTRIES

A
Construction in Progress
      Cash
              #construction expenses

Accounts Receivable
Billings on LT contracts
#billings

Cash
A/R
#collection

Construction in Progress (realized GP)
Construction Expenses (CY expenses)
       Construction Revenue (%of completion x  
                               contract price)
Billings on LT contracts
     Construction in progress
           #closing entry
13
Q

COMPLETED CONTRACT METHOD

JOURNAL ENTRIES

A
Construction in progress
     Cash
             #construction expenses
A/R
     Billings on LT contracts
Cash
      A/R

END OF YEAR PROFIT RECOGNITION
NO ENTRY

Upon completion of contract:

Construction expenses
Construction in progress

Billings on LT contracts
Construction revenue

14
Q

Classification of Billings on LT contracts in the BS

A

treated like an unearned revenue
current liability

presented as deduction from Construction in progress account - current asset in the BS

15
Q

In % of completion, computation of total loss to be recognized if profit was realized in the prior year

JOURNAL ENTRY

A
Total revenue
Less: total estimated costs
= Loss
\+ Previously recognized profit
= Loss to be recognized for the CY

Loss on uncompleted LT contracts
Construction in progress

16
Q

In the completed contract method, computation of loss to be recognized for the year is

A

Total revenue
Less: Total estimated costs
= Loss

Loss on uncompleted LT contracts
Construction in progress

NOTE! NOT PRIOR YEAR REALIZED PROFIT RECOGNIZED IN COMPLETED CONTRACT METHOD!!!