(Recognition of Revenue on Long-Term Contract and Entries) Hamilton Construction Company uses the percentage-of-completion method of accounting. In 2017, Hamilton began work under contract #E2-D2, which provided for a contract price of \(2,200,000. Other details follow:

2017 2018

Costs incurred during the year \)640,000 $1,425,000

Estimated costs to complete, as of December 31 960,000 –0–

Billings during the year 420,000 1,680,000

Collections during the year 350,000 1,500,000

Instructions

(a) What portion of the total contract price would be recognized as revenue in 2017? In 2018?

(b) Assuming the same facts as those above except that Hamilton uses the completed-contract method of accounting, what portion of the total contract price would be recognized as revenue in 2018?

(c) Prepare a complete set of journal entries for 2017 (using the percentage-of-completion method).

Step by step solution

01

Completed-Contract Method

It's a method of accounting that allows businesses to defer income and cost reporting until the end of a contract.

02

Revenue recognized in 2018 by the completed-contract method

The whole contract value of $2,200,00 is reported as revenue in 2018 as the amount is earned in 2018, and according to accounting principles, the revenue should be recognized in the year in which it is earned.

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