On March 1, 2010, Chance Company entered into a contract to build an apartment building. It is estimated that the building will | cost | $2,000,000 | and will take 3 years to complete. The contract price was | $3,000,000 | The | information that follows pertains to the construction period: | | | 2010 | 2011 | 2012 | | Costs to date: | $600,000 | $1,560,000 | $2,100,000 | | Estimated costs to complete: | 1,400,000 | 520,000 | 0 | | Progress billing to date: | 1,050,000 | 2,000,000 | 3,000,000 | | Cash collected to date: | 950,000 | 1,950,000 | 2,850,000 | | | Instructions: | (a) Compute the amount of gross profit to be recognized each year assuming the percentage-of-completion method is used. | | Gross profit recognized in: | | | 2010 | 2011 | 2012 | Contract price | | $3,000,000 | | $3,000,000 | | $3,000,000 | Costs: | | | | | | | Costs to date | $600,000 | | $1,560,000 | | $2,100,000 | | Estimated costs to complete | 1,400,000 | 2,000,000 | 520,000 | 2,080,000 | 0 | 2,100,000 | Total estimated profit | | 1,000,000 | | 920,000 | | 900,000 | Percentage completed to date | | 30% | | 75% | | 100% | Total gross profit recognized | | 300,000 | | 690,000 | | 900,000 | Less: GP recognized in previous years | | - | | 300,000 | | 690,000 | Gross profit recognized in current year | | 300,000 | | $390,000 | | $210,000 | | (b) Prepare all necessary journal entries for 2012. | | | Construction in Process (2,100,000 - 1,560,000) | 540,000 | | | | Materials, Cash, Payables, etc. | | 540,000 | | | | Accounts Receivable (3,000,000 - 2,000,000) | 1,000,000 | | | | Billings on Construction in Process | | 1,000,000 | | | | Cash (2,850,000 - 1,950,000) | 900,000