Exhibit 18-1 In 2010, Alpha Construction began work on a contract with a price of $850, 000 and estimated costs of $595, 000.Data for each year of the contract are as follows:
$\begin{array}{llll}
&2010&2011&2012\
\text { Costs incurred chring the year } & \$ 238,000 & \$ 319,600 & \$ 105,000 \
\text { Estimated costs to complete } & 357,000 & 139,400 & -0- \
\text { Partial billings } & 260,000 & 210,000 & 380,000 \
\text { Collections } & 240,000 & 200,000 & 410,000
\end{array}$

-Refer to Exhibit 18-1.Under the percentage-of-completion method of revenue recognition, the net amount reported for construction in progress inventory at the end of 2011 would be
A)$ 87, 600
B)$189, 600
C)$210, 000
D)$312, 000

Question

Exhibit 18-1 In 2010, Alpha Construction began work on a contract with a price of $850, 000 and estimated costs of $595, 000.Data for each year of the contract are as follows:
$\begin{array}{llll}
&2010&2011&2012\
\text { Costs incurred chring the year } & \$ 238,000 & \$ 319,600 & \$ 105,000 \
\text { Estimated costs to complete } & 357,000 & 139,400 & -0- \
\text { Partial billings } & 260,000 & 210,000 & 380,000 \
\text { Collections } & 240,000 & 200,000 & 410,000
\end{array}$

-Refer to Exhibit 18-1.Under the percentage-of-completion method of revenue recognition, the net amount reported for construction in progress inventory at the end of 2011 would be
A)$ 87, 600
B)$189, 600
C)$210, 000
D)$312, 000

Quizplus · Accepted Answer

To calculate the net amount reported for construction in progress inventory, we need to first determine the percentage of completion for each year.

Percentage of completion for 2010: 
Total costs incurred = $165,000 
Percentage of completion = Total costs incurred / Estimated total costs = $165,000 / $595,000 = 0.277

Percentage of completion for 2011: 
Total costs incurred = $210,000 
Percentage of completion = Total costs incurred / Estimated total costs = $210,000 / $595,000 = 0.353

Using the percentage of completion method, we can calculate the revenue recognized for each year:

Revenue recognized in 2010: 
Revenue = Contract price x Percentage of completion = $850,000 x 0.277 = $235,450

Revenue recognized in 2011: 
Revenue = Contract price x (Percentage of completion in 2011 - Percentage of completion in 2010) = $850,000 x (0.353 - 0.277) = $64,600

The net amount of construction in progress inventory at the end of 2011 would be:

Net amount of construction in progress inventory = Total costs incurred - Revenue recognized 
Net amount of construction in progress inventory = $210,000 - $64,600 = $145,400

However, we need to take into account any progress billings made. In this case, the progress billings made for each year are:

Progress billings in 2010: 
Progress billings = Contract price x Percentage of completion = $850,000 x 0.277 = $235,450

Progress billings in 2011: 
Progress billings = Contract price x Percentage of completion in 2011 = $850,000 x 0.353 = $300,050

The net amount reported for construction in progress inventory at the end of 2011 would then be:

Net amount of construction in progress inventory = Total costs incurred - (Progress billings in 2010 + Progress billings in 2011 - Revenue recognized in 2010 - Revenue recognized in 2011) 
Net amount of construction in progress inventory = $210,000 - ($235,450 + $300,050 - $235,450 - $64,600) = $210,000

Therefore, the answer is choice C, $210,000.

Exhibit 18-1 in 2010, Alpha Construction Began Work on a Contract