Question

A construction company entered into a fixed-price contract to build an office building for $16 million. Construction costs incurred during the first year were $3 million and estimated costs to complete at the end of the year were $7 million. During the first year the company billed its customer $3 million, of which $1 million was collected before year-end. What would appear in the year-end balance sheet related to this contract using the percentage-of-completion method

Answer 1

Answer:

On the balance sheet it will appear:

account receivable                2,000,000

unbilled contract revenue     1,800,000

Explanation:

Using percentage of completion method:

3,000,000 cost incurred  + 7,000,000 cost to complete= 10,000,000 total cost

3,000,000/10,000,000 = 30%

16,000,000 revenue x 30% = 4,800,000 millions

cash                                            1,000,000

account receivable                  2,000,000

unbilled contract receivable   1,800,000

         contract revenue earned                   4,800,000