Archer Construction Company began work on a $420,000 construction contract in 2017. During 2017, Archer incurred costs of $278,000, billed its customer for $215,000, and collected $175,000. At December 31, 2017, the estimated additional costs to complete the project total $162,000. Prepare Archer's journal entry to record profit or loss, if any, using (a) the percentage-of-completion method and (b) the completed-contract method

This a loss making contract of $33,000

Explanation:

Under I. A. S 11, The following steps are followed

Step 1 - Determine Expected Outcome of the Contract

Project Value - 420,000

Cost to date - (278,000)

Cost to complete - (175,000)

Outcome of Contract is Loss of $33,000

Step 2 - Determine the amounts to be recognized in Income Statement for Profit, Revenue and Cost.

Cost to date - 278,000

Contract Loss (33,000)

Revenue (Balancing Amount = $245,000

Journal Entries

Dr Cost expended to date - 278,000

Cr Revenue to date - 245,000

Cr Loss 33,000

b) Percentage Completion Method

Stage of Completion % = (Costs incurred to Date / Total Contract Costs) * 100

278,000/453,000 = 61.36%

Revenue recognizable = 61.36% * Contract Value = 257,712

Cost to date = ... = 278,000

Loss to Date (balancing figure) ... = 20,288

Journal Entries

Dr Cost expended to date - 278,000

Cr Revenue to date - 257,712

Cr Loss 20,288