*Both year 1 and 2, part 4 and 5 are wrong

Recording Long- Term Construction: Recognize Revenue at a Point in Time and Over Time

Watson Construction Company contracted to build a plant for $500,000. Construction started in January of Year 1 and was completed in November of Year 2. Watson uses the cost-to-cost method to measure the completion of its performance obligations. Data relating to the contract follow.

As of December 31	Year 1	Year 2
Costs incurred	$290,000	$120,000
Estimated costs to complete	125,000
Billings	270,000	230,000
Cash collections	250,000	250,000

Required

• Point in Time
• Over Time

b. Provide the Year 1 and Year 2 journal entries for Watson assuming revenue is recognized over time. Provide entries for (1) construction costs incurred, (2) progress billings, (3) cash collections, (4) revenues and expenses, and (5) to close out accounts upon completion of the contract.

Percent Complete	Numerator		Denominator		Result
At the end of Year 1	Answer		Answer	=

Note: Use the result EXACTLY as displayed above in the calculations below. Note: If a journal entry isn't required on any of the dates shown, select "N/Adebit" and "N/Acredit" as the account names and leave the Dr. and Cr. answers blank (zero).

Year 1	Account Name	Dr.	Cr.
1.	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	To record constructions costs incurred
2.	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	To record progress billings
3.	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	To record collections
4.	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	To recognize revenues and expenses
5.	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	To close out accounts

Year 2	Account Name	Dr.	Cr.
1.	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	To record constructions costs incurred
2.	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	To record progress billings
3.	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	To record collections
4.	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	To recognize revenues and expenses
5.	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	Accounts ReceivableBillings on ContractsCashConstruction in ProcessCost of ConstructionCost of Goods SoldDeferred RevenueRevenues from Long-Term ContractsSales RevenueN/ADebitN/ACredit		Answer
	To close out accounts