Arizona Desert Homes (ADH) constructed a new subdivision during 2017 and 2018 under contract with Cactus Development Co. Relevant data are summarized below: ADH recognizes revenue over time with respect to these contracts. What would be the journal entry made in 2017 to record revenue?

Question

Arizona Desert Homes (ADH) constructed a new subdivision during 2017 and 2018 under contract with Cactus Development Co. Relevant data are summarized below:  ADH recognizes revenue over time with respect to these contracts. What would be the journal entry made in 2017 to record revenue?

Quizplus · Accepted Answer

Percentage complete = $1,200,000 / ($1,200,000 + $600,000) = 2/3
Revenue recognized = 2/3 × $3,000,000 = $2,000,000
Cost recognized = $1,200,000
Gross profit recognized = $2,000,000 - $1,200,000 = $800,000

Arizona Desert Homes (ADH) Constructed a New Subdivision During 2017