Step 1: Calculate Percentage Completed

% Complete= Costs incurred to date

Most recent estimated total costs

Year: 2011

% Complete = 1,000,000/ 4,000,000 = 25%

Year: 2012

% Complete = 2,916,000/4,050,000 = 72%

Year: 2013

% Complete = 4,050,000/4,050,000 = 100%

Step 2: Calculate Revenue and gross profit recognized to date and

Step 3: Calculate Revenue and gross profit recognized in the year

Year: 2011

Revenue recognized up to 2011= % complete x Contract Price

25% x 4,500,000 = 1,125,000

Revenue recognized in 2011 = Revenue recognized up to 2011 –

Revenue recognized in prior years

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1,125,000 – 0 = 1,125,000
Year: 2012
Revenue recognized up to 2012= % complete x Contract Price

72% x 4,500,000 = 3,240,000

Revenue recognized in 2012 = Revenue recognized up to 2012 –

Revenue recognized in prior years

3,240,000 – 1,125,000 = 2,115,000

Year: 2013

Revenue recognized up to 2013= % complete x Contract Price

100% x 4,500,000 = 4,500,000

Revenue recognized in 2013 = Revenue recognized up to 2013 –

Revenue recognized in prior years

2
4,500,000 – 3,240,000 = 1,260,000
Year: 2011

Estimated Gross Profit = Estimated Total Revenue – Estimated Total

Costs

4,500,000 – 4,000,000 = 500,000

Gross Profit recognized up to 2011= % complete x Estimated GP

25% x 500,000 = 125,000

GP recognized in 2011 = GP recognized up to 2011 – GP recognized

in prior years

125,000 – 0 = 125,000

Year: 2012
Estimated GP = Estimated Total Revenue – Estimated Total Costs

4,500,000 – 4,050,000 = 450,000

GP recognized up to 2012= % complete x Estimated GP

72% x 450,000 = 324,000

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GP recognized in 2012 = GP recognized up to 2012 – GP recognized
in prior years

324,000 – 125,000 = 199,000

Year: 2013

Estimated GP = Estimated Total Revenue – Estimated Total Costs

4,500,000 – 4,050,000 = 450,000

GP recognized up to 2013= % complete x Estimated GP

100% x 450,000 = 450,000

GP recognized in 2013 = GP recognized up to 2013 – GP recognized

in prior years

450,000 – 324,000 = 126,000

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Journal Entries:

Year 2011
1) Record Construction Costs as incurred:
DR CR

Construction in Process 1,000,000

Materials/Cash/Payables etc. 1,000,000

2) Record Accounts Receivables as billed:

Accounts Receivable 900,000

Billings on Construction in Process 900,000

3) Record Collection of Receivables:

Cash 750,000
Accounts Receivable 750,000

4) Record Revenue Earned at the end of the year:

Construction in Process (Gross Profit) 125,000

Construction Expense 1,000,000

Revenue 1,125,000

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Year 2012
1) Record Construction Costs as incurred:
DR CR

Construction in Process 1,916,000

Materials/Cash/Payables etc. 1,916,000

2) Record Accounts Receivables as billed:

Accounts Receivable 2,400,000

Billings on Construction in Process 2,400,000

3) Record Collection of Receivables:

Cash 1,750,000
Accounts Receivable 1,750,000

4) Record Revenue Earned at the end of the year:

Construction in Process (Gross Profit) 199,000

Construction Expense 1,916,000

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 Revenue 2,115,000
Year 2013
1) Record Construction Costs as incurred:
DR CR

Construction in Process 1,134,000

Materials/Cash/Payables etc. 1,134,000

2) Record Accounts Receivables as billed:

Accounts Receivable 1,200,000

Billings on Construction in Process 1,200,000

3) Record Collection of Receivables:

Cash 2,000,000
Accounts Receivable 2,000,000

4) Record Revenue Earned at the end of the year:

Construction in Process (Gross Profit) 126,000

Construction Expense 1,134,000

Revenue 1,260,000

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5) Record Completion of the Contract:

Billings on Construction in Process 4,500,000

Construction in Process 4,500,000

Billings on Construction in Process Construction in Process

900,000 2011 Costs 1,000,000

2,400,000 2011 GP 125,000
1,200,000 2012 Costs 1,916,000
2012 GP 199,000
4,500,000 2013 Costs 1,134,000
2013 GP 126,000

4,500,000