Question Completion:
Blue Co. had the following first-year amounts related to its $12,000,000 construction contract Actual costs incurred and paid Estimated remaining costs to complete Progress billings Cash collected $3,000,000 6,000,000 3,500,000 3,100,000 Assuming the contract qualifies for 'revenue recognition over time, what total amount (excluding cash) should Blue Co. recognize as current assets at year end?
Multiple Choice
a) $3,000,000
b) $1,000,000
c) $0
d) $900,000
Answer:
Blue Co.
The total amount (excluding cash) that Blue Co should recognize as current assets at year end is:
d) $900,000
Explanation:
a) Data and Calculations:
Value of Construction Contract = $12,000,000
Actual costs incurred and paid $3,000,000
Estimated remaining costs to complete $6,000,000
Progress billings $3,500,000
Cash collected $3,100,000
Percentage completion during the first year = Actual costs incurred/Total costs * 100
= $3,000,000/$9,000,000 * 100 = 33.333%
Revenue to be recognized based on percentage of completion and revenue recognition over time = $12,000,000 * 33.333%
= $4,000,000
Accounts Receivable = $900,000 ($4,000,000 - $3,100,000)
