Tullis Construction enters into a long-term fixed price contract to build an office tower for $14,000,000. In the first year of the contract, Tullis incurs $5,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $6,000,000 in year 1 and collected $3,700,000 by the end of the end of the year. Refer to Tullis Construction. What would be the journal entry in Year 1 to record revenue assuming the use of the percentage-of-completion method? (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.)
A) $\begin{array}{lrr}
\text { Accounts Receivable } &3,700,000\
\text {Revenue for Long-Term Contracts } &&3,700,000\
\end{array}$

B) $$\begin{array} { l c c }
\text { Cost of Construction } & 5,000,000 \
\text { Construction in Progress } & 2,000,000 & \
\quad \text { Revenue for Long-Term Contracts } & & 7,000,000
\end{array}$$
C) $$\begin{array} { l l l }
\text { Cost of Construction } & 2,000,000 \
\text { Construction in Progress } & 5,000,000 & \
\quad \text { Revenue for Long-Term Contracts } & & 7,000,000
\end{array}$$
D) $$\begin{array} { l l l }
\text { Accounts Receivable } & 3,700,000 \
\text { Billings in Excess of Costs } & 2,300,000 & \
\quad \text { Revenue for Long-Term Contracts } & & 6,000,000
\end{array}$$

Question

Tullis Construction enters into a long-term fixed price contract to build an office tower for $14,000,000. In the first year of the contract, Tullis incurs $5,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $6,000,000 in year 1 and collected $3,700,000 by the end of the end of the year. Refer to Tullis Construction. What would be the journal entry in Year 1 to record revenue assuming the use of the percentage-of-completion method? (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.)
A) $\begin{array}{lrr}
  \text { Accounts Receivable } &3,700,000\
 \text {Revenue for Long-Term Contracts  } &&3,700,000\
\end{array}$

B) $$\begin{array} { l c c } 
\text { Cost of Construction } & 5,000,000 \
\text { Construction in Progress } & 2,000,000 & \
\quad \text { Revenue for Long-Term Contracts } & & 7,000,000
\end{array}$$
C) $$\begin{array} { l l l } 
\text { Cost of Construction } & 2,000,000 \
\text { Construction in Progress } & 5,000,000 & \
\quad \text { Revenue for Long-Term Contracts } & & 7,000,000
\end{array}$$
D) $$\begin{array} { l l l } 
\text { Accounts Receivable } & 3,700,000 \
\text { Billings in Excess of Costs } & 2,300,000 & \
\quad \text { Revenue for Long-Term Contracts } & & 6,000,000
\end{array}$$

Quizplus · Accepted Answer

Under the percentage-of-completion method, revenue is recognized based on the percentage of costs incurred to total estimated costs. In this case, the percentage of completion is $5,000,000 / ($5,000,000 + $5,000,000) = 50\%$. Therefore, revenue recognized is 50% of $14,000,000, which is $7,000,000. The journal entry records the cost of construction, construction in progress, and revenue for long-term contracts accordingly.

Tullis Construction Enters into a Long-Term Fixed Price Contract to Build