Question

In 2016, Pioneer Construction Company entered into a contract to construct a road for Denton County for S10,000,000. The road was completed in 2018. Information related to the contract is as follows: 2017 $2,610,000 S3,162,000 $2,230,800 2,028,000 2,100,000 3,672,000 4,228,000 1,850,000 3,000,000 5,150,000 2016 2018 Cost incurred during the year Estimated costs to complete as of year-end Billings during the year 6,390,000 0 Cash collections during the year Pioneer recognizes revenue over time according to percentage of completion. Calculate the % of completion, amount of revenue and gross profit to be recognized in 2016. Calculate the balance in CIP a/c at the end of 2016. Are CIP/Billings presented as an asset or liability in the balance sheet at the end of 2016. a) b) c) a) Percentage of Completion

Answer 1

Percentage of Completion Method

                                                                   2016           2017           2018

(A) Costs incurred to date                          2610000     3162000    2230800

Estimated future costs                                6390000    2028000     0

(B) Estimated total costs                            9000000     5190000     2230800

Progress billings to date                             2100000     3672000     4228000

Cash collected to date 1850000     3000000     5150000

(C) Est. total gross profit (10000000 - B) 1000000     4810000     7769200

(D) Percent Complete (A/B) 29%            61%            100%

Rev. Recog. to Date (10000000*D)            2900000     6100000     10000000

Current Yr. Revenue Recognized 2900000     3200000     3900000

Total GP Recognized to Date (C*D)           1000000     2934100     7769200

Current Yr. Gross Profit Recognized 1000000     1934100     4835100

(a).Percentage of completion

2016 = 29%

2017 = 61%

2018 = 100%

Amount of revenue recognized in 2016 = 2900000

Amount of Gross Profit recognized in 2016 = 1000000

(c).CIP/Billings are presented as an asset in the Balance Sheet. Construction Work-in-Progress is a long-term asset account in which the costs of constructing long-term assets are recorded. The account Construction Work-in-Progress will have a debit balance and will be reported on the   balance sheet   as part of a company's “ Property, Plant and Equipment “

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