Sonia Inc. entered into a contract with Lala Inc. on July 1,2018 to construct an office building. The total contract price forconstruction of the building is $400,000. The building wascompleted on December 31, 2020. Sonia’s fiscal year end is December31.
Below is related information of Sonia Inc. regarding thisconstruction:
| 2018 | 2019 | 2020 |
Actual cost incurred during the year | $35,000 | $215,000 | $175,000 |
Estimated costs to complete | 315,000 | 170,000 | 0 |
Billings to Lala Inc. to date | 72,000 | 217,000 | 400,000 |
Please answer each of the following questions andclearly label which question you are answering. You canprepare it in Word, in Excel, or handwrite it. Once completed,upload the completed Word or Excel document or a picture of thehandwritten work (22 points).
Please use the percentage-of-completion method for items1-5.
- Prepare journal entries for the actual construction costsincurred and billings made in 2018. (4points)
- Calculate the amount of revenue and gross profit or loss to berecognized in 2018. Please show supportingcalculations. (5 points)
- Prepare the adjusting journal entry for 2018to record revenue recognition and gross profit/loss. (3points)
- Prepare a partial balance sheet for 2018relating to the contract. You do NOT need to include Cash andAccounts Receivable in your answer. Be sure to indicate whether anitem is an asset or liability. Please show supportingcalculations. (3 points)
- Calculate the amount of revenue and gross profit or loss to berecognized in 2019. Please show supportingcalculations. If needed, round the percentage calculationto the fourth decimal (e.g. 22.36%) and round the dollar amount tothe whole dollar. (5 points)
Please use the completed contract method for item6.
- Using the completed contract method, how muchrevenue would be recognized in2018? (2 points)
