Tullis Construction enters into a long-term fixed price contract to build an office tower for $15,000,000. In the first year of the contract. Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $3,800,000 in year 1 and collected $3,300,000 by the end of the end of the year. Refer to Tullis Corporation. How should Tullis report Construction in Progress and Billings on Construction in Progress at the end of year 1 on the balance sheet assuming the use of the completed-contract method?
A) liability of $800,000
B) asset of $800,000
C) asset of $500,000
D) liability of $500,000

Question

Quizplus · Accepted Answer

Under the completed-contract method, revenue and expenses are recognized only when the contract is completed. At the end of year 1, Tullis has billed $3,800,000 but incurred costs of $3,000,000, resulting in a liability of $800,000 (Billings in excess of costs).

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