Poweron Construction Company commences the construction of a museum on 1 July 2018. It signs a fixed-price contract for total revenue of $190 million. The project is expected to be completed by the end of June 2021. The expected cost at the commencement of construction was $170 million. The expected costs to complete a construction project can change throughout the project. The following data relates to the project:

	2019	2020	2021
	($ M)	($ M)	($ M)
Costs for the year	50	60	50
Costs incurred to date	50	110	160
Estimated costs to complete	120	60	-
Progress billings during the year	40	80	70
Cash collected during the year	35	80	75

The contract is completed as expected on 30 June 2021. Poweron Construction Company uses the percentage-of-completion method to account for its construction contract.

REQUIRED

a. Compute the gross profit to be recognised for each of the three years.

b. Provide the journal entries for each year. Assume the stage of completion can be reliably determined. Exclude journal narrations.

c. Prepare the journal entries for each year assuming the stage of completion and the outcome of the construction contract cannot be reliably estimated. Show the differences from b) only. Exclude journal narrations.

Answer rating: 100% (QA)

Calculation of Gross Profit and Journal Entries Contract Price190M Cost Incurred A 50 60 50 Total Es... View the full answer