Apartment King (AK)is building a luxury condominium for a contract price of $68,000,000. This is estimated to be a three-year project with an estimated cost of $54,000,000. AK uses the percentage of completion method of revenue recognition, using the cost-to-cost method of estimating the percentage complete. The following is the best available information at the end of each year:
Required:
a. Calculate the amount of gross profit to be recognized in Year 1, Year 2, and Year 3. Show computations in tabular form provided below.
b. Prepare all the journal entries required in Year 2.
c. Prepare the journal entry required in Year 3 to close the accounts related to the project.
d. At the end of Year 2, if the estimated cost to complete is $28 million (instead of $27 million), how much gross profit would be recognized in Year 2?

Question

Apartment King (AK)is building a luxury condominium for a contract price of $68,000,000. This is estimated to be a three-year project with an estimated cost of $54,000,000. AK uses the percentage of completion method of revenue recognition, using the cost-to-cost method of estimating the percentage complete. The following is the best available information at the end of each year:
  Required:
a. Calculate the amount of gross profit to be recognized in Year 1, Year 2, and Year 3. Show computations in tabular form provided below.
  b. Prepare all the journal entries required in Year 2.
c. Prepare the journal entry required in Year 3 to close the accounts related to the project.
d. At the end of Year 2, if the estimated cost to complete is $28 million (instead of $27 million), how much gross profit would be recognized in Year 2?

Quizplus · Accepted Answer

The Answer of Apartment King (AK)is building a luxury condominium for a contract price of $68,000,000. This is estimated to be a three-year project with an estimated cost of $54,000,000. AK uses the percentage of completion method of revenue recognition, using the cost-to-cost method of estimating the percentage complete. The following is the best available information at the end of each year:
  Required:
a. Calculate the amount of gross profit to be recognized in Year 1, Year 2, and Year 3. Show computations in tabular form provided below.
  b. Prepare all the journal entries required in Year 2.
c. Prepare the journal entry required in Year 3 to close the accounts related to the project.
d. At the end of Year 2, if the estimated cost to complete is $28 million (instead of $27 million), how much gross profit would be recognized in Year 2?

Apartment King (AK)is Building a Luxury Condominium for a Contract