Question

Assuming the contract qualifies for revenue recognition while the performance obligations are being satisfied, excluding cash, what total amount should Blue Co. recognize as current assets at year end?

Answer 1

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)