Question

Heston Preskell, Inc., a commercial contractor, signed a contract during Year 1 for $808,000 to build an office building for the YMCA.

Heston Preskell completed 30% of the work during Year 1 and the remaining 70% during Year 2.

The cost of acquired production materials during Year 1 by Heston Preskell was $195,000 and an additional $330,000 during Year 2.

Heston Preskell billed the YMCA $225,000 in Year 1 and the final $580,000 in Year 2. The YMCA paid $210,000 in Year 1, $440,000 in Year 2, and the balance in Year 3.

Heston Preskell uses the percentage of completion method of revenue recognition.

Calculate the Account Receivable amount for the year ending December 31, Year 1:

Calculate the Production in Progress amount for the year ending December 31, Year 1:

Calculate the Revenue recognized amount for the year ending December 31, Year 1:

Calculate the Gross Profit amount for the year ending December 31, Year 1:

Answer 1

• All working forms part of the answer
• Please note that Contract price mentioned by you is $ 808,000 [however amount billed is $ 805,000]
• Requirement 1: Accounts receivables amount for year ending Dec 31, Year 1

Amount billed in Year 1 = $ 225,000

Amount received in Year 1= $ 210,000

ANSWER = 225000 – 210000 = $ 15,000

• Requirement 2: Production in Progress for year ending Dec 31 Year 1

=Cost incurred in Year 1 + (Revenue recognised – Cost of Year 1)

= $ 195,000 + [(808000 x 30%) – 195000]

= 195000 + (242400 – 195000)

= $ 242,400

ANSWER = $ 242,400

• Requirement 3: Revenue recognised in Year 1

= Contract amount x % completed in Year 1

= 808000 x 30%

= $ 242,400 = ANSWER

• Requirement 4: Gross Profits in Year 1

=Revenue recognised – Cost incurred in Year 1

= 242400 – 195000

= $ 47,400 = ANSWER