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