MSK Construction Company contracted to construct a factory building for $525,000. Construction started during 20X1 and was compl

Question

9 days ago

11

MSK Construction Company contracted to construct a factory building for $525,000. Construction started during 20X1 and was compl

eted in 20X2. Information relating to the contract follows:
20X1 20X2
Costs incurred during the year $290,000 $150,000
Estimated additional cost to complete 145,000 —
Billings during the year 260,000 265,000
Cash collections during the year 240,000 285,000

Required:
a. Record the preceding transactions in MSK’s books assuming it recognizes revenue over time and uses costs incurred to measure the extent to which its performance obligation has been satisfied.
b. Record the preceding transactions in MSK’s books assuming it recognizes revenue at a point in time when control of the completed factory is transferred to the customer at the end of the project.

Business

1 answer:

Free_Kalibri [3.4K] · Answer 1 · 2026-03-30T01:58:31+03:00

MSK Construction Company A. Journal Entries, assuming MSK acknowledges revenue over time by using the incurred costs to measure the fulfillment of its performance obligation: 20X1: Debit Work in Process $290,000 Credit Cash Account $290,000 To record costs incurred for the contract. Debit Accounts Receivable $260,000 Debit Unbilled Cost of Contract $90,000 Credit Contract Revenue $350,000 To record billed amount to customer and revenue. Debit Cash Account $240,000 Credit Accounts Receivable $240,000 To log cash received from customer. 20X2: Debit Work in Process $150,000 Credit Cash Account $150,000 To record costs incurred for the contract. Debit Accounts Receivable $265,000 Credit Unbilled Cost of Contract $90,000 Credit Contract Revenue $175,000 To register billed amount to customer and the associated revenue. Debit Cash Account $285,000 Credit Accounts Receivable $285,000 To document cash received from customer. B. Journal Entries, assuming MSK records revenue at a specific point when the ownership of the completed factory is transferred to the client at project’s end: 20X1: Debit Work in Process $290,000 Credit Cash Account $290,000 To log the costs incurred for the contract. Debit Accounts Receivable $260,000 Credit Unearned Revenue $260,000 To document the amount billed to the customer. Debit Cash Account $240,000 Credit Accounts Receivable $240,000 To track cash receipts from the customer. 20X2: Debit Work in Process $150,000 Credit Cash Account $150,000 To record the costs incurred for the contract. Debit Accounts Receivable $265,000 Debit Unearned Revenue $260,000 Credit Contract Revenue $525,000 To log the billed amount to the customer and the revenue. Debit Cash Account $285,000 Credit Accounts Receivable $285,000 To record cash receipts from the customer.