Acct 414

6/13/2013

Prof. Teresa Gordon

Garfield Construction Inc. - Construction Accounting

Garfield Construction Inc. (GCI) has contracted to build hydroelectric plant on
the Palouse River. The project will take three years to complete. The contract
price is $10,000,000. CCC can bill the State of Washington during construction
on a formula basis. Both parties are expected to fulfill their obligations under
the contract.
Total contract revenue:
Construction costs incurred
during year
Progress billings for yr
Collections during year
Est costs to complete

10,000,000
2011

2012

2,000,000
1,500,000
1,000,000
6,000,000

3,100,000
4,100,000
4,200,000
3,400,000

2011

2012

2013
3,300,000
4,400,000
4,800,000
0

Totals
8,400,000
10,000,000
10,000,000

2013

Cost incurred to-date

Estimated total cost
Percentage of completion
Construction revenue to-date
Construction revenue for year
Construction cost for year
Gross profit for year
Gross profit recognized to-date

151652101.xls.ms_office

-1-

Problem

Acct 414

6/13/2013

Garfield Construction Inc. - Construction Accounting

JOURNAL ENTRIES
PERCENTAGE OF COMPLETION METHOD
(US GAAP or IFRS)

2011
DR

Prof. Teresa Gordon

2012

CR

DR

2013
CR

DR

2014
CR

DR

Construction in Progress
Accts Pay, Cash, etc.
Accounts Receivable
Partial Billings
Cash
Accounts Receivable

T-accounts

151652101.xls.ms_office

Construction in progress

Partial billings

-2-

Accounts Receivable

JEs-% blank

Acct 414

6/13/2013

Prof. Teresa Gordon

2014
CR

counts Receivable

151652101.xls.ms_office

-3-

JEs-% blank

Acct 414

6/13/2013

Garfield Construction Inc. - Construction Accounting

JOURNAL ENTRIES

Completed contract method (US

GAAP only)

2011
DR

Prof. Teresa Gordon

2012
CR

DR

2013
CR

DR

2014
CR

DR

CR

Construction in Progress
Accts Pay, Cash, etc.
Accounts Receivable
Partial Billings
Cash
Accounts Receivable

T-accounts

151652101.xls.ms_office

Construction in progress

Partial billings

-4-

Accounts Receivable

JEs-CC-blank

Acct 414

6/13/2013

Garfield Construction Inc. - Construction Accounting

JOURNAL ENTRIES

Zero Profit Method (IFRS only)

2011
DR

Prof. Teresa Gordon

2012
CR

DR

2013
CR

DR

2014
CR

DR

CR

Construction in Progress
Accts Pay, Cash, etc.
Accounts Receivable
Partial Billings
Cash
Accounts Receivable

T-accounts

151652101.xls.ms_office

Construction in progress

Partial billings

-5-

Accounts Receivable

JEs-zero profit (blank)

Acct 414

6/13/2013

Prof. Teresa Gordon

Garfield Construction Inc. - Construction Accounting

Total contract revenue:
10,000,000
2011
2012
Construction costs
incurred during the year
2,000,000
3,100,000
Progress billings during yr
1,500,000
4,100,000
Collections during year
1,000,000
4,200,000
Estimated costs to complete
6,000,000
3,400,000
Percentage of completion
25.00%
60.00%
PARTIAL SOLUTION
Yr end balances
CIP-% of completion
2,500,000
6,000,000
CIP-completed contract & zero
profit
2,000,000
5,100,000
Progress Billings
1,500,000
5,600,000
A/R
500,000
400,000

SOLUTION - PERCENTAGE OF COMPLETION METHOD

Cost incurred to-date
2,000,000
5,100,000
ESTIMATED TOTAL COST
8,000,000
8,500,000
% of completion
25.00%
60.00%
Constr Rev to-date
Construction Revenue for yr
Construction Cost
Gross Profit Construction
PROJECTED TOTAL PROFIT
G.P. RECOGNIZED TO-DATE

151652101.xls.ms_office

2,500,000
2,500,000
2,000,000
500,000
2,000,000
500,000

6,000,000
3,500,000
3,100,000
400,000
1,500,000
900,000

-6-

2013
3,300,000
4,400,000
4,800,000
0
100.00%

10,000,000
8,400,000
10,000,000
0

8,400,000
8,400,000
100.00%
10,000,000
4,000,000
3,300,000
700,000
1,600,000
1,600,000

Solution

Acct 414
BALANCE SHEET PRESENTATION
Percentage of Completion:
CURRENT ASSETS
Constr Costs in Excess
of related billings

6/13/2013
2011

Prof. Teresa Gordon

2012

1,000,000

2013

400,000

CURRENT LIABILITIES
Constr Billings in excess
of related costs
Completed Contract
CURRENT ASSETS
Constr Costs in Excess
of related billings

500,000

CURRENT LIABILITIES
Constr Billings in excess
of related costs

151652101.xls.ms_office

500,000

-7-

Solution

Acct 414

6/13/2013

Prof. Teresa Gordon

totals
8,400,000
10,000,000
10,000,000

OK

OK
10,000,000
8,400,000
1,600,000
OK

151652101.xls.ms_office

-8-

Solution

Acct 414

151652101.xls.ms_office

6/13/2013

-9-

Prof. Teresa Gordon

Solution

Acct 414

6/13/2013

solution

Garfield Construction Inc. - Construction Accounting

JOURNAL ENTRIES

2011

PERCENTAGE OF COMPLETION METHOD

DR

Construction in Progress
Accts Pay, Cash, etc.

2,000,000

Accounts Receivable
Partial Billings

1,500,000

Cash
Accounts Receivable

1,000,000

Construction Costs
Construction in Progress
Construction Revenue

2,000,000
500,000

2012
CR

DR

Ending balance 1999

Ending balance 2000

Ending balance 2001

Ending balance 2002

Pre-closing balance, 2003

151652101.xls.ms_office

2013
CR

DR

3,100,000
2,000,000
4,100,000
1,500,000

4,400,000

4,200,000

4,400,000

4,800,000
4,200,000

3,100,000
400,000
2,500,000

DR

3,300,000

4,100,000

1,000,000

2014
CR

3,300,000
3,100,000

4,800,000

3,300,000
700,000
3,500,000

Closing Entry
Partial Billings
Construction in Progress

T-accounts

Prof. Teresa Gordon

4,000,000

10,000,000
10,000,000

Construction in progress
2,000,000
500,000
2,500,000
3,100,000
400,000
6,000,000
3,300,000
700,000
10,000,000
10,000,000
10,000,000

Partial billings
1,500,000

- 10 -

Accounts Receivable
1,500,000

1,500,000
4,100,000

500,000
4,100,000

5,600,000
4,400,000

400,000
4,400,000

10,000,000
-

10,000,000
-

10,000,000

JEs-% (sol)

Acct 414

6/13/2013

Prof. Teresa Gordon

2014
CR
-

ccounts Receivable
1,000,000

4,200,000

4,800,000

151652101.xls.ms_office

- 11 -

JEs-% (sol)

Acct 414

6/13/2013

solution

Garfield Construction Inc. - Construction Accounting

JOURNAL ENTRIES

COMPLETED CONTRACT METHOD

Construction in Progress
Accts Pay, Cash, etc.
Accounts Receivable
Partial Billings
Cash
Accounts Receivable
Estimated loss on construction contract
Construction in progress

2011
DR

2012
CR

2,000,000
1,500,000
1,000,000
-

2,000,000
1,500,000
1,000,000

Ending balance 1999

Ending balance 2000

Ending balance 2001

Ending balance 2002

Pre-closing balance, 2003

151652101.xls.ms_office

2013

2014

DR

CR

DR

CR

3,100,000
4,100,000
4,200,000
-

3,100,000
4,100,000
4,200,000

3,300,000
4,400,000
4,800,000
-

3,300,000
4,400,000
4,800,000

DR

Closing Entry
Partial Billings
Construction revenue
Construction costs
Construction in progress

T-accounts

Prof. Teresa Gordon

CR
-

10,000,000
10,000,000
8,400,000
8,400,000

Construction in progress
2,000,000
0
0
2,000,000
3,100,000
0
0
5,100,000
3,300,000
0
0
8,400,000
0
0
0
8,400,000
0
0
0
8,400,000

Partial billings
1,500,000
1,500,000
4,100,000
5,600,000
4,400,000
10,000,000
0
10,000,000
0
10,000,000

- 12 -

Accounts Receivable
1,500,000
1,000,000
500,000
4,100,000
4,200,000
400,000
4,400,000
4,800,000
0
0
0
0
0
0
0

JEs-CC (sol)

Acct 414

6/13/2013

solution

Garfield Construction Inc. - Construction Accounting

JOURNAL ENTRIES

COMPLETED CONTRACT METHOD

Construction in Progress
Accts Pay, Cash, etc.
Accounts Receivable
Partial Billings
Cash
Accounts Receivable
Construction costs
Construction revenue

2011
DR
2,000,000
1,500,000
1,000,000
-

2012
CR
2,000,000
1,500,000
1,000,000

2,000,000

Ending balance 2011

Ending balance 2012

Ending balance 2013

Ending balance 2014

Pre-closing balance, 2015

151652101.xls.ms_office

2013

2014

DR

CR

DR

CR

3,100,000
4,100,000
4,200,000
-

3,100,000
4,100,000
4,200,000

3,300,000
4,400,000
4,800,000
-

3,300,000
4,400,000
4,800,000

3,100,000
2,000,000

3,300,000
3,100,000

Closing entry
Construction revenue (gross profit)
Contr in progress
Partial billings

T-accounts

Prof. Teresa Gordon

DR

CR
-

3,300,000

1,600,000
8,400,000
10,000,000

Construction in progress
2,000,000
0
2,000,000
3,100,000
0
5,100,000
3,300,000
0
8,400,000
0
0
0
8,400,000
0
0
0
8,400,000

Partial billings
1,500,000
1,500,000
4,100,000
5,600,000
4,400,000
10,000,000
0
10,000,000
0
10,000,000

- 13 -

Accounts Receivable
1,500,000
1,000,000
500,000
4,100,000
4,200,000
400,000
4,400,000
4,800,000
0
0
0
0
0
0
0

JEs-zero profit (sol)