Thrasher Construction Company was contracted to construct a building for $ 975,000. The building is owned by the customer throughout the contract period. The contract provides for progress payments. Thrasher’s accounting year ends 31 December. Work began under the contract on 1 July 20X5, and was completed on 30 September 20X7. Construction activities are summarized below by year:
20X5.... Construction costs incurred during the year, $ 180,000; estimated costs to complete, $ 630,000; progress billings during the year, $ 153,000; and collections, $ 140,000.
20X6.. Construction costs incurred during the year, $ 450,000; estimated costs to complete, $ 190,000; progress billing during the year, $ 382,500; and collections, $ 380,000.
20X7... Construction costs incurred during the year, $ 195,000. Because the contract was completed, the remaining balance was billed and later collected in full per the contract.
1. Give hrasher’s journal entries to record these events. Assume that percentage- of- completion is measured by the ratio of costs incurred to date divided by total estimated construction costs.
2. Provide the balances that would be shown on the SCI and SFP for this contract for each year.
3. Now assume that the company uses the completed- contract basis for this construction contract. Prepare the journal entries required to record the events from 20X5 to 20X7. Also calculate the balances that would be shown on the SCI and SFP for this contract for each year.