Question

Prachce Problem 9 In Year 1, Amber Construction Corporation began construction work under a three-year contract. The contract price is $1,610,000. Long uses the percentage-of-completion method for financial reporting purposes. The financial statement presentation relating to this contract at December 31, year 1, is as follows: Balance Sheet $30,000 Accounts receivable (from construction progress billings) Construction in progress Less: Billings on Construction Contract $100,000 (93,000) 7,000 Cost of uncompleted contracts in excess of billings Income Statement $24,000 Income (before tax) on the contract recognized in Year1 Required: 1. What was the cost of construction actually incurred in year 1? 2. How much cash was collected in year 1 on this contract? 3. What was the estimated cost to complete as of the end of year 1? 4. What was the estimated percentage of completion used to calculate revenue in year 1?

Answer 1

Amber Construction Corporation Requirement 1 Balance Sheet Accounts receivable (from construction progress billings) 30000 Construction in progress 100000 Less: Billings on construction contract -93000 Cost of uncompleted contracts in excess of billings 7000 Income Statement Income (before tax) on the contract recognized in year 1 24000 Construction in Progress 76000 Cost Profit 24000 100000 Requirement 2 Balance Sheet Accounts receivable (from construction progress billings) 30000 Construction in progress 100000 Less: Billings on construction contract -93000 Cost of uncompleted contracts in excess of billings 7000 Income Statement Income (before tax) on the contract recognized in year 1 24000 Journal Enteries Debit in $ Credit in $ Date Particulars Dec-31 Accounts receivable 93000 To Billings on construction contract 93000 Accounts Receivable 93000 63000 30000

Requirement 3 Balance Sheet Accounts receivable (from construction progress billings) 30000 Construction in progress 100000 Less: Billings on construction contract Cost of uncompleted contracts in excess of billings -93000 7000 Income Statement Income (before tax) on the contract recognized in year 1 24000 of con ruction actually incurred 76,000 Co Contract Completion To date Construction in Progress 76000 X 1610000/ 100000 24000 X $1,610,000 $100,000 100000 X 1610000/100000 Construction in Progress 1223600 Cost 386400 Profit 1610000 $1,223,600- $76,000 = $1,147,600 Requirement 4 Balance Sheet Accounts receivable (from construction progress billings) 30000 Construction in progress 100000 Less: Billings on construction contract Cost of uncompleted contracts in excess of billings -93000 7000 Income Statement Income (before tax) on the contract recognized in year 1 24000 Construction in progress $100,000 $1,610,000 Contract price % of completion 6.21%