Question

In 2013, Long Construction Corporation began construction work under a three-year contract. The contract price is $2,400,000. Long uses the percentage-of-completion method for financial reporting purposes. The financial statement presentation relating to this contract at December 31, 2013, is as follows:

Balance Sheet
Accounts receivable (from construction progress billings)				$	38,000
Construction in progress	$	160,000
Less: Billings on construction contract		(150,000	)
Cost of uncompleted contracts in excess of billings					10,000

Income Statement
Income (before tax) on the contract recognized in 2013	$	28,000

Required:
1.	What was the cost of construction actually incurred in 2013?

      

2.	How much cash was collected in 2013 on this contract?

      

3.	What was the estimated cost to complete as of the end of 2013?

      

4.	What was the estimated percentage of completion used to calculate income in 2013? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

      

Answer 1

Ans:

1. Cost of construction Actually Incurred in 2013 :

Actual Cost Incurred= Construction in Progress-Income[before tax]

Actual Cost Incurred= 160,000-28,000

Actual Cost Incurred= $132,000

2. Cash Collection in 2013= Total Billing- Account Receivable

Cash Collection in 2013= 150,000-38,000

Cash Collection in 2013= 112,000

3. Estimated cost to complete as end of 2013

Let A denotes the total cost to complete the cost of construction

A is the sum of Actual cost incurred and estimated cost to complete

Actual cost incurred/ A*(contract Price- A)= Profit Recognized

132,000/A*(2,400,000-A)= 28,000

2,400,000-A= 28,000*A/132,000

2,400,000-A= 28A/132

2,400,000= 160A/132

A= 2,400,000*132/160

A= 1,980,000

Estimated Cost to complete= 1,980,000-132,000

Estimated cost to complete= 1,848,000

4. Estimated Percentage of Completion = 132,000/1,980,000*100

=> 6.66%