Question

Carla Vista Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1300000 each quarter. The total contract price is $18330000 and Carla Vista estimates total costs of $17500000. Carla Vista estimates that the building will take 3 years to complete, and commences construction on January 2, 2021. At December 31, 2021, Carla Vista estimates that it is 30% complete with the construction, based on costs incurred. What is the total amount of Revenue from Long-Term Contracts recognized for 2021 and what is the balance in the Accounts Receivable account assuming Cannon Company has not yet made its last quarterly payment

Answer 1

Answer:

$5,499,000

$1,300,000

Explanation:

Carla Vista Construction uses the percentage-of-completion method.

The contract calls for progress billings and payments of $1,300,000 each quarter.

The total contract price is $18,330,000

At December 31, 2021, Carla Vista estimates that it is 30% complete with the construction, based on costs incurred.

Using Percentage completion method implies that we account for revenue based on applying the percentage completed on the Total contract value: 30% x $18,330,000 = $5,499,000

Therefore the total amount of Revenue from Long-Term Contracts to be recognized for 2021 is $5,499,000

Accounts Receivable balance will be its last quarterly payment of $1,300,000

Answer 2

Answer:

Total amount of Revenue, 2021 = $5499000

Balance in the Accounts Receivable account = $5250000

Explanation:

Given

Progress billings and payments = $1300000

Total contract price = $18330000

Estimated total costs = $17500000.

Time = 3 years

Estimated Completion = 30%

Calculating the total amount of Revenue from Long-Term Contracts recognized for 2021

Total amount of Revenue, 2021 = Total contract revenue * % Completed during the year

Total = $18330000 * 30%

Total = $5499000

Calculating the balance in the Accounts Receivable account

Balance = New Estimate of Costs expected * % Completed during the year

Balance = $17500000 * 30%

Balance = $5250000