Question

Refer to the situation described in BE 6–33. Assume that, during the first year the company billed its customer $7 million, of which $5 million was collected before year-end. What would appear in the year-end balance sheet related to this contract?

 

 

Data From BE 6-33

A construction company entered into a fixed-price contract to build an office building for $20 million. Construction costs incurred during the first year were $6 million and estimated costs to complete at the end of the year were $9 million. The company recognizes revenue over time according to percentage of completion. How much revenue and gross profit or loss will appear in the company’s income statement in the first year of the contract?

Answer 1

Calculate the balance in accounts receivable:

Particulars	Amount $	Amount $
Customer billed		7,000,000
Less: Cash received		(5,000,000)
Balance in accounts receivables		2,000,000

 

Prepare partial balance sheet:

Balance sheet (Partial) End of Year
Assets	Amount $
Percentage-of-Completion:
Current assets:
Accounts receivable	2,000,000
Costs and profits ($8,000,000) in excess of billing ($7,000,000)	1,000,000

Calculate the balance in accounts receivable:

Particulars	Amount $	Amount $
Customer billed		7,000,000
Less: Cash received		(5,000,000)