On March 1 2010 Manama Construction Company started to const

On March 1. 2010. Manama Construction Company started to construct a latb building for University of Bahrain for a total contract price of $ 4.200,000. The lab building was to be completed by October 31 incurred, estimated costs to comple collections for 2010, 2011, and 2012 are given below. , 2012. The annual contract costs te the contract, billings to UOB and 2010 2011 2012 Costs incurred to date $1,440.000 l $2.240,00$3,200,000 1,760,000 960,000 Estimated costs to complete the contract Billings to UOB to date Cash collected to date 1,600,000 3,350,000 4,200,000 1,000,0001-2750,0001 3250,000 If the Manama Company applies the percentage of completion method; 1- Compute the amount of gross profit or loss to be recognized each year. 2- Prepare all the necessary journal entries for 2010 to record: (a) costs incurred, (b) billings. (c) collections and (d) revenue and gross profit or loss recognized 3- Prepare the journal entry to record the completion of the contract in 2012. 4- Prepare partial balance sheet at December 31, 2011? 1. Gross Profit or Loss Recognized (6 points) 2010 2011 2012

Solution

Manama Construction Company Project: Lab building for University of Bahrain Contract price ($) Method: Percentage of completion 4200000 Costs 2010 2011 2012 Costs incurred to date 1440000 2240000 3200000 Estimated costs to complete contract 1760000 960000 Billings to UOB to date 1600000 3350000 4200000 Cash collected to date 1000000 2750000 3250000 1 Compute the amount of profit or loss each year 2010 2011 2012 Percentage of completion 42% 23% 35% Revenue 1760000 960000 1470000 Gross profit/(Loss) 320000 (1280000) (1730000) 2 Journal Entries 2010 a Debit Credit Costs incurred 1440000 Bank 1440000 (Recording costs incurred) b Billings UOB 1600000 Revenue 1600000 (Recording billings) c Collections Bank 100000 UOB 100000 (Recording collections) d Revenue Incomplete contracts 1760000 Revenue 1760000 (Revenue recognized) e Incomplete contracts 320000 Gross profit 320000 (Gross profit recognition) 3 Completion of contract in 2012 UOB 4200000 Revenue 4200000 (Revenue on completion of contract recognized) Cash 3250000 UOB 3250000 (Recording cash collected) Gross Loss (1730000) Completed contracts (1730000) (Recording loss on completion of contract) 4 Partial Balance Sheet 31/12/2011 Assets UOB 600000 Cash 2750000 3350000 Equity Profit/Loss (960000)