The Balance Sheet of CPM Construction Company as of 31 December 2013 is given in Table P4.3. Assume that this company is using the POC method of income recognition. Further, assume that 65% of the projects with total bid price of $850,000 have been completed in 2014.
(a) Journalize the following transactions. Identify each transaction as asset, liability, revenue, expense, and so forth (Table P4.4).
(b) Establish relevant accounts for posting. Divide them into categories as Assets, Liabilities, and Net Worth.
(c) Close accounts as of 31 December 2014.
(d) Develop the Income Statement for the year 2014.
(e) Develop the Balance Sheet as of 31 December 20X4.
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TABLE P4.3 Balance Sheet, CPM Construction Company (31 December, 2013)
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Assets
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Liabilities
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75,000
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Accounts payable
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85,000
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Cash
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110,000
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Notes payable
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50,000
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Accounts receivable
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300,000
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Long-term loans
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60,000
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Buildings
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Less accumulated depreciation
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(150,000)
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Total liabilities
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195,000
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on the buildings
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240,000
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Net worth
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Construction equipment
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Less accumulated
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(80,000)
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Capital stocks
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250,000
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depreciation on equipment
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20,000
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Retained earnings
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70,000
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Other assets
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515,000
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Total net worth
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320,000
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Total assets
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Total net worth and liabilities
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515,000
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TABLE P4.4 Transaction for CPM Construction Company
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Transaction
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Date
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Transaction
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Number
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1
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1/2/X4
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CPM Co. bought construction equipment for $130,000 for which
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the company paid $15,000 cash and remaining on account.
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2
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2/4/X4
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CPM Co. was billed $20,000 by Smith Material Supplier for cost
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of material.
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3
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3/4/X4
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CPM paid $20,000 to Smith Material Supplier related to
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transaction #2.
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4
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3/8/X4
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CPM billed client for $320,000 (bill #1 on Job 101).
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5
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4/7/X4
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CPM was billed $60,000 by National Rental Co. for renting
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construction equipment.
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6
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5/8/X4
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CPM received $290,000 from client for bill #1 on Job 101.
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7
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6/7/X4
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CPM paid $60,000 to the National Rental Co. for the bill received
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on 4/7/X4.
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8
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7/3/X4
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CPM paid $70,000 cost of labor.
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9
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8/16/X4
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CPM was billed $45,000 by subcontractor.
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10
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9/16/X4
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CPM paid $45,000 to the subcontractor for the bill received on
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8/16/X4.
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11
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10/1/X4
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CPM billed client for $280,000 (bill #2 on Job 101).
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12
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10/20/X4
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Accounts receivable of $20,000 are collected.
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13
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11/15/X4
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CPM received $265,000 from client for bill #2.
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14
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12/15/X4
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Accounts payable of $40,000 are paid.
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15
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12/25/X4
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CPM paid $145,000 in payroll expense.
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16
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12/30/X4
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Dividends paid in the amount of $20,000 to stockholders.
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17
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12/30/X4
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Building depreciation of $30,000 recognized for the year.
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18
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12/30/X4
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CPM depreciates its construction equipment for the total of
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$65,000 each year (this includes also the depreciation of the
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equipment bought on 1/2/X4.)
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