Question

n 2021, Short Construction began construction work under a four-year contract. The contract price is $2,000,000. Short recognizes revenue over time according to percentage of completion method. The balance sheet shows the following accounts at the end of 2021: A/R of $40,000, Construction in Progress of $200,000, Less: Billings on Construction Contract of $170,000. The income statement shows Income on the contract of $30,000 at the end of 2021.

What was the total estimated cost of the project at the end 2021?

	a.	1,300,000
	b.	400,000
	c.	1,700,000
	d.	None of the answers is correct
	e.	2,000,000

Answer 1

Solution:

Revenue recognized using percentage of completion = Balance of construction in progress = $200,000

% completion during the year = $200,000 / $2,000,000 = 10%

Cost incurred during the year = Revenue recognized - Income on the contract = $200,000 - $30,000 = $170,000

total estimated cost of the project at the end 2021 = $170,000 / 10% = $1,700,000

Hence option c is correct.