Answer:
a. $100,000
b. The $400,000 will be reported as accounts receivable in the balance sheet under current assets.
Explanation:
Under the cost to completion method, the amount of revenue earned from long term projects is a function of the cost incurred on the project. In other words, the more the cost incurred, the higher the revenue.
Given that the total contract price of $3 million and estimated costs of $2.5 million, when $500,000 is expended for work performed, actual revenue earned and to be recognized
= $500,000/$2.5 million *$3 million
= $600,000
Gross income = Revenue - cost of sales
= $600,000 - $500,000
= $100,000
If the company only bills $400,000 having earned $600,000
Debit Accounts receivables $400,000
Debit Unbilled receivables $200,000
Credit Revenue account $600,000
