Question

Sandlewood Construction Inc. recognizes revenue over time according to percentage of completion for its long-term construction contracts. In 2018, Sandlewood began work on a $10,000,000 construction contract, which was completed in 2019. The accounting records disclosed the following data at the end of 2018: Costs incurred $ 5,400,000 Estimated cost to complete 3,600,000 Progress billings 4,100,000 Cash collections 3,200,000 In addition to accounts receivable, what would appear in the 2018 balance sheet related to the construction accounts?

Answer 1

Answer:

Current assets - $1,900,000

Explanation:

The computation of the construction account balance is shown below:

= Cost incurred + gross profit - progress billings

where,

Gross profit = Revenue - cost incurred

The revenue = (Cost incurred ÷ total cost) × completion cost

                     = ($5,400,000 ÷ $9,000,000) × $10,000,000

                     = $6,000,000

So, the gross profit equal to

= $6,000,000 -  $5,400,000

= $600,000

Now put these values to the above formula  

So, the value would equal to

= $5,400,000 + $600,000 -  $4,100,000

= $6,000,000 - $4,100,000

= $1,900,000 current assets