On February 1, 2020, a company agreed to construct a building at a contract price of $42,000. The company estimated the project would be finished in 2022. Information relating to the costs and billings for this contract is as follows:
2020 2021 2022
Total costs incurred to date $8,000 $10,000 $22,000
Estimated costs to complete 12,000 6,000 -0-
Customer billings to date 9,000 21,000 29,000
Collections to date 4,000 14,000 25,000
If the company uses the percentage-of-completion method, an inventory/current liability of $___________should be shown on the balance sheet at December 31, 2021 related to the project.
Solution:
Total cost incurred till 2021 = $10,000
Total estimated cost at end of 2021 = $10,000 + $6,000 = $16,000
Percentage completion till 2021 = $10,000 / $16,000 = 62.50%
Revenue recognized till 2021 = $42,000 * 62.50% = $26,250
Gross profit till 2021 = $26,250 - $10,000 = $16,250
Customer billings till 2021 = $21,000
Cost and profit in excess of billing to be reported in balance sheet of 2021 = $26,250 - $21,000 = $5,250
If the company uses the percentage-of-completion method, an inventory/current liability of $5,250 should be shown on the balance sheet at December 31, 2021 related to the project.
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