Question

Turner, Inc. began work on a \(7,000,000 contract in 2017 to construct an office building. During 2017, Turner, Inc. incurred costs of \)1,700,000, billed its customers for \(1,200,000, and collected \)960,000. At December 31, 2017, the estimated additional costs to complete the project total $3,300,000. Prepare Turner’s 2017 journal entries using the percentage-of-completion method.

Short answer

Revenue generated from this contract is $2,380,000.

Step-by-step solution

Meaning of Percentage-of-Completion Method

As a corporation approaches the end of a long-term contract, the percentage-of-completion technique is used to calculate revenues, expenditures, and gross profit. Deferring recognition of these items until the contract's end distorts the effort (costs) and outcomes of the accounting periods (revenues).

Journal entries of Turner Inc. in 2017

Date	Particular	Debit ($)	Credit ($)
	Construction in process a/c	1,700,000
	To Materials, Cash, Payables a/c		1,700,000
	Accounts receivables a/c	1,200,000
	To Billings on construction in process a/c		1,200,000
	Cash a/c	960,000
	To Accounts receivables a/c		960,000
	Construction in process a/c	680,000
	Construction expenses a/c	1,700,000
	To Revenue from contract a/c		2,380,000