In 2018, Long Construction Corporation began construction work under a three-yea
ID: 2525695 • Letter: I
Question
In 2018, Long Construction Corporation began construction work under a three-year contract. The contract price is $2,400,000. Long recognizes revenue over time according to percentage of completion for financial reporting purposes. The financial statement presentation relating to this contract at December 31, 2018, is as follows Balance Sheet Accounts receivable (from construction progress billings) Construction in progress Less: Billings on construction contract Cost and profit of uncompleted contracts in excess of billings $38,000 160,000 (150,000) 10,000 Income Statement Income (before tax) on the contract recognized in 2018 $28,000 Required 1. What was the cost of construction actually incurred in 2018? 2. How much cash was collected in 2018 on this contract? 3. What was the estimated cost to complete as of the end of 2018? 4. What was the estimated percentage of completion used to calculate revenue in 2018? 1. Actual costs incurred in 2018 2. Cash collections in 2018 3. Estimated cost to complete 4·Estimated percentageExplanation / Answer
SOLUTION
(A) Construction in progress = Costs incurred + Profit recognized
$160,000 = Costs incurred + $28,000
Costs incurred = $160,000 - $28,000
Costs incurred = $132,000
(B) Billings = Cash collections + Accounts Receivable
$150,000 = Cash collections + $38,000
Cash collections = $150,000 - $38,000
Cash collections = $112,000
(C) Let A = Actual cost incurred + Estimated cost to complete
Actual cost incurred / A * (Contract price - A) = Profit recognized
$132,000 / A * ($2,400,000 - A) = $28,000
$316,800,000,000 - 132,000 A = $28,000 A
$316,800,000,000 = $28,000 A + 132,000 A
$316,800,000,000 = 160,000 A
A = $1,980,000
Estimated cost to complete = $1,980,000 - $132,000
Estimated cost to complete = $1,848,000
(D) Estimated percentage = 132,000 / 1,980,000 = 6.67%