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Journal Entries for UNPROFITABLE Long-Term Contracts that turn out to be PROFITABLE

Hello All!

Below is the journal entry for when a long-term contract is estimated to be UNPROFITABLE and then PROFITABLE?

Year 2014 (when the contract was estimated to be profitable)

Dr. Construction Expenses $1,000,000
Dr. Construction in Process (gross profit) $100,000

Cr. Revenue from L-T Contract $1,100,000


Year 2015 (it is estimated that the contract will only profit $150,000, but the loss for 2015 is $100,000)
Construction costs incurred in 2015 is $1,500,000. The revenue for 2015 is $1,400,000. The loss for 2015 is $100,000.
Question: Is the gross profit that is recognized in 2014 adjusted in 2015? If yes, how?


Year 2016 (it is estimated that the contract will BE UNPROFITABLE resulting in losses of $500,000. The revenue for 2015 is $700,000 and the cost incurred is $650,000. The $650,000 consists of materials, cash, labor, etc incurred to do the work in 2015. What is the JE for this in 2015 with the adjustments to make for prior year losses?


In 2017, the project is completed. There is a gain on the project for an amount of $100,000. So the UNPROFITABLE project turned out to be PROFITABLE. What is the journal entry for 2017? The revenue for 2017 is $750,000 and the cost incurred is $700,000.

What is the correct Journal Entries for all these years using the Percentage of Completion Method?

No answers ... yet!