Question

During 2014, Darwin Corporation started a construction job with a contract price of S4.2 million. Darwin ran into severe technical difficulties during construction but managed to complete the job in 2016. The following information is available:
Instructions
Under the earnings approach:
(a) Calculate the amount of gross profit that should be recognized each year under the percentage-of-completion method.
(b) Prepare the journal entries for 2015 to recognize the revenue from the contract, assuming the percentage-of-completion method is used. Explain the treatment of losses under the earnings approach for percentage-of-completion.
(c) Calculate the amount of gross profit or loss that should be recognized each year under the completed-contract method. Explain the treatment of losses under the earnings approach for completed-contract.
(d) Prepare the necessary journal entry in 2016 to close the contract accounts and to recognize the revenues and costs upon completion, assuming the completed-contract method is used.


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  • CreatedSeptember 18, 2015
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