Question

In: Accounting

A partial balance sheet of ACE Construction Company is shown below. Can you identify which construction...

A partial balance sheet of ACE Construction Company is shown below. Can you identify which construction accounting method this company uses and which income recognition method is used by the company? Explain how you have identified the methods.

Assets

Cash

$1,876,854

Accounts Receivable

$875,202

Material Inventory

$420,210

Costs and Estimated Earnings in excess of billings

$250,653

Machinery and equipment

$642,173

Cars and trucks

$124,873

Less accumulated depreciation

$218,748

Solutions

Expert Solution

There are 2 method of accounting for construction contract. One is the percentage of completion method and the second method is the completed contract method. The percentage of competition method computes percentage of completion based on cost incurred and estimated cost to be incurred. It accounts for construction work in progress and billings done for revenue recognised. The competed contract method accounts for construction contract based on full completion of contract.

In the given case percentage of completion method is used for accounting construction contracts. The reason being there is cost in construction accounting and the billings for the construction contract have been deducted from the construction cost in progress to show the net balance. The billing is the revenue recognised in income statement based on percentage of completion. It is a contra account and hence it is deducted from construction cost account to show the net balance in Balance sheet asset side.

ekkarill92 answered 1 year ago
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