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Archer Construction Company began work on a $420,000 construction contract in 2017. During 2017, Archer incurred costs of $278,000, billed its customer for $215,000, and collected $175,000. At December 31, 2017, the estimated additional costs to complete the project total $162,000. Prepare Archer's journal entry to record profit or loss, if any, using (a) the percentage-of-completion method and (b) the completed-contract method

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Answer:

This a loss making contract of $33,000

Explanation:

Under I.A.S 11, The following steps are followed

Step 1 - Determine Expected Outcome of the Contract

Project Value - 420,000

Cost to date -  (278,000)

Cost to complete - (175,000)

Outcome of Contract is Loss of $33,000

Step 2 - Determine the amounts to be recognized in Income Statement for Profit, Revenue and Cost .

Cost to date -  278,000

Contract Loss  (33,000)

Revenue (Balancing Amount = $245,000

Journal Entries

Dr  Cost expended to date - 278,000

Cr      Revenue to date -             245,000

Cr      Loss                                      33,000

b) Percentage Completion Method

Stage of Completion %  = (Costs incurred to Date / Total Contract Costs )*100

278,000/453,000 = 61.36%

Revenue recognizable = 61.36% * Contract Value = 257,712

Cost to date  =................................................................. = 278,000

Loss to Date (balancing figure)................................... =   20,288

Journal Entries

Dr  Cost expended to date - 278,000

Cr      Revenue to date -             257,712

Cr      Loss                                      20,288

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