Percentage-of-Completeion Method

Question 1

When is it appropriate to use Percentage-of-Completion Method?

Answer 1

When collection is assured and the entity’s accounting system can:

1. ) Reasonably estimate profitability; and
2. ) Provide a reliable measure of progress toward completion

Question 2

Revenues are generally recognized when:

Answer 2

1. ) Earnings process is complete or virtually complete: and

2. ) an exchange has taken place

Question 3

Gross Profit and Loss is recognized in each period by the following Steps:

Answer 3

1.) Gross Profit of completed contract
Contract Price
___________

       \_\_\_\_\_\_\_\_\_\_\_\_
     Gross Profit
      ================
2.) Percentage of Completion (% of work done)
     Total Cost to date
     \_\_\_\_\_\_\_\_\_\_\_\_\_\_
     Total estimated cost of contract
3.) Gross Profit Earned (Profit to Date)
     Gross Profit x Percentage of Completion
4.) Gross Profit Earned for current year
     Profit to Date at Current Year End

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
 Current Year-to-date Gross Profit
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Question 4

Journal Entry to Record Costs Incurred

Answer 4

DR Construction in Progress

CR Cash

Question 5

Journal Entry to Record Billings on Contract

Answer 5

DR Contracts Receivable

CR Progress Billing

Question 6

Journal Entry to Record Payments Received

Answer 6

DR Cash

CR Contracts Receivable

Question 7

Journal Entry for Revenue/Cost Incurred during Construction Period

Answer 7

DR Construction Expense (costs incurred to date)
DR Construction in Progress (Profit to date)
CR Revenue