StrongBridges Ltd. was awarded a $20 million contract to build a bridge.

The estimated time to complete the project is three (3) years, with a

2008 2009 2010

Cost Incured Commulative 5,000,000 7,000,000 15,000,000

Estimated total cost 15,000,000 15,000,000 15,000,000

Billing 6,000,000 6,000,000 8,000,000

Cash Collection 5,000,000 7,000,000 8,000,000

% of completion 33% 47% 100%

Year 2008: 33% completed. Revenue recognized = 33% x $20 million (contract price) = $6,600,000
Year 2009: 47% completed. Revenue recognized = 47% x $20 million (contract price) – $6.6 million (previously recognized) = $2,800,000
Year 2010: 100% completed. Revenue recognized = 100% x $20 million (contract price) – $6.6 million – $2.8 million (previously recognized) = $10,600,000

6,600,000
Total Revenue = $20,000,000 2,800,000
10,600,000
Costs recognized under the percentage of completion method: 20,000,000

Year 2008: $5,000,000

Year 2009: $2,000,000
Year 2010: $8,000,000

Total Cost = $15,000,000

Profit recognized under the percentage of completion method:

 Year 2008: $6,600,000 – $5,000,000 = $1,600,000
Year 2009: $2,800,000 – $2,000,000 = $800,000
Year 2010: $10,600,000 – $8,000,000 = $2,600,000

Gross Profit = $5,000,000

year Description dr/cr Amount

2001 CIP dr 5,000,000
Cash Cr (5,000,000)
2001 A/Receivable dr 5,000,000
Bills payables cr (5,000,000)
2001 Cash Dr 5,000,000
Receivables Cr (5,000,000)
2001 Costruction cost dr 5,000,000
Cip dr 2,000,000
Revenue cr (7,000,000)
2002 CIP dr 2,000,000
Cash cr (2,000,000)
2002 A/Receivable dr 6,000,000
Bills payables cr (6,000,000)
2002 Cash dr 2,000,000
Receivables cr (2,000,000)
2002 Costruction cost dr 20,000,000
Cip dr 8,000,000
Revenue cr (28,000,000)
2003 CIP dr 8,000,000
Cash cr (8,000,000)
2003 Receivables dr 8,000,000
Bills payables cr (8,000,000)
2003 Cash dr 8,000,000
Bills payables cr (8,000,000)
2003 Costruction cost dr 8,000,000
Profit loss dr 2,600,000
 Revenue cr (10,600,000)
2003 Bills payables dr 20,000,000
cip cr (20,000,000)
three (3) years, with an estimated cost of $15 million. Assuming that the cost estimates do not change, the project is expected to generate $5 million in
6,600,000.00

2800000

94,085.30
42,977.95
611,554.42 705639.72
279,356.63 322334.58
1,027,974.30 1027974.3

25,553.00
166,094.50 1219621.22
191,647.50
1,219,621.80