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Question - Recognition of Profit and Entries on Long-Term Contract
On March 1, 2010, Chance Company entered into a contract to build an apartment building. It is estimated that the building will cost $2,000,000 and will take 3 years to complete. The contract price was $3,000,000. The following information pertains to the construction period.
2010
2011
2012
Cost to date
$600,000
$1,560,000
$2,100,000
Estimated cost to complete
$1,400,000
$520,000
$0
Progress billings to date
$1,050,000
$2,000,000
$3,000,000
Cash collected to date
$950,000
$1,950,000
$2,850,000
Instructions:
a) Compute the amount of gross profit to be recognized each year assuming the percentage-of-completion method is used.
b) Prepare all necessary journal entries for 2012.
c) Prepare a partial balance sheet for December 31, 2011, showing the balances in the receivables and inventory accounts.
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