Given the following data for a firm which uses the percentage of completion method on long-term construction contracts, determine the ending balance of the account which is the net of Construction- in-Process, and Billings on Contracts, at the end of Year 1, the first year of this project. Costs incurred = $20,000
Billings = $26,000
Cash collected = $15,000
Estimated remaining cost to complete, as of 12-31-2001 = $30,000
Contract price = $60,000
A) Costs in excess of billings $5,000
B) Billings in excess of costs $2,000
C) Costs in excess of billings $14,000
D) Billings in excess of costs $667

Question

Quizplus · Accepted Answer

The ending balance is determined by comparing the costs incurred to the billings. Costs incurred are $20,000, and billings are $26,000, resulting in billings in excess of costs by $6,000. However, the percentage of completion method requires recognizing revenue based on the percentage of completion, which is 40% ($20,000 / $50,000 total estimated cost). Thus, revenue recognized is $24,000 (40% of $60,000 contract price), leading to billings in excess of costs by $2,000 ($26,000 - $24,000).

Given the Following Data for a Firm Which Uses the Percentage