Question

Sandlewood Construction Inc. recognizes revenue over time according to the 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?

a) A current asset of $1,300,000
b) A current liability of $900,000
c) A current asset of $900,000
d) A current asset of $1,900,000

Answer 1

Answer:

d) A current asset of $1,900,000

Explanation:

The computation is shown below:

Revenue recognized till date is

=  [$5,400,000 ÷ ($5,400,000 + $3,600,000)] × $10,000,000

= $6,000,000

And, the

Gross profit recognized till date is

= $6,000,000 - $5,400,000

= $600,000

So, the current asset balance in the balance sheet is

= Revenue recognized - progress billings

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

= $1,900,000