Wermer, Inc. began a construction project in 2020.  The project is accounted for under the percentage of completion method.  The total price of the job is $50 million.  The following information (in million dollars) applies:

                                                                                                                                2020                       2021

Construction costs incurred during the year$20$10
Construction costs incurred in prior years             –0–             20
Cumulative construction costs  20  30
Estimated costs to complete at end of year             15             10
Total estimated and actual construction costs$35$40

i) Calculate Wermer’s percentage-of completion for 2020, and write the journal entry that records 2020 revenue for this project. 

Percentage of completion:  20/35=57%

2016 Journal entry:

                                Cost of construction (or COGS)                                   20

                                Construction in Progress (CIP)                                     8.5 (plug for gross profit)

                                                Revenue (57%*50)                                                                           28.5

(Check:  2016 gross profit = 57%*(50-35) = $8.5 million)

ii) Calculate Wermer’s percentage-of completion for 2021, and write the journal entry that records 2021 revenue for this project. 

Percentage of completion:  30/40=75%

2017 Journal entry:

                                Cost of construction (or COGS)                                   10

                                                Construction in Progress (CIP)                                                     1  (plug for loss)

                                                Revenue (75%*50-28.5)                                                                9

(Check:  2017 gross profit = 75%*(50-40)-8.5 = -$1 million)