10. Dixon Construction Company was awarded a contract to construct an interchange at the junction of U. S. 94 and Highway 30 at a total contract price of $15,000,000. The estimated total costs to complete the project were $12,000,000. (a) Make the entry to record construction costs of $7,200,000, on construction in process to date. (b) Make the entry to record progress billings of $4,000,000. (c) Make the entry to recognize the profit that can be recognized to date, on a percentage-of- completion basis.

If Dixon Construction Company was awarded a contract to construct an interchange at the junction of U.S. 94 and Highway 30 at a total contract price of $15,000,000. The estimated total costs to complete the project were $12,000,000. The journal entries are:

(a) The entry to record construction costs of $7,200,000, on construction in process to date will be:

Debit Construction in Process $7,200,000

Credit Materials, Cash, Payables $7,200,000

(To record construction costs)

(b)  The entry to record progress billings of $4,000,000.

Debit Accounts Receivable $4,000,000

Credit Billings on Construction in Process $4,000,000

( To record progress billings)                                            

(c) The entry to recognize the profit that can be recognized to date, on a percentage-of- completion basis.

Debit Construction Expenses $7,200,000

Debit Construction in Process (60% complete) $1,800,000

($9,000,000-$7,200,000)

Credit Revenue from Long-Term Contracts $9,000,000

[($7,200,000÷$12,000,000=60%)×$15,000,000]

(To record percentage-of- completion basis profit)

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Journal Entry

Explanation:

                      Books of (Dixon Construction Company)

                                      Journal Entry

Date   Account Title and Explanation            Debit       Credit

A.     Construction in process       A/c Dr.   $7,200,000

        Cash / Accounts payable    A/c                            $7,200,000

      (Being construction cost paid)

B.     Accounts receivables           A/c Dr.   $4,000,000

         Billing in progress                A/c                           $4,000,000

        (Being record of billing in progress)

C.    Construction expenses         A/c Dr.    $7,200,000

       Construction in process        A/c Dr.    $1,800,000

          Revenue from construction  A/c                           $9,000,000

          (Being income generate from contract)

Note:

Revenue from construction = Total contract(Construction in process / estimated total costs to complete)

Revenue from construction =  $15,000,000($7,200,000 / $12,000,000)

Revenue from construction =  $9,000,000

Construction in process = Revenue from construction - Construction expenses  

Construction in process = $9,000,000 - $7,200,000

Construction in process = $1,800,000