Question

In: Accounting

1. ABC expends $500,000 for work performed under a contract with a total contract price of...

1. ABC expends $500,000 for work performed under a contract with a total contract price of $3 million and estimated costs of $2.5 million. It sends a bill to the customer for $400,000 under the terms of the contract.

a. How much revenue and gross profit should the company recognize in the income statement?

b. How is the $400,000 billing reported on the balance sheet?

Solutions

Expert Solution

Percentage of completion is used:
1 Total Contract price $    3,000,000
Cost incurred                500,000
Add: estimated cost to be incurred            2,000,000        2,500,000
Estimated Gross Profit            500,000
x percentage complete x 20%*
Gross profit to be recognized $        100,000
*500000÷ 2500000 = 20%
Revenue to be recognized = 3000000 x 20% = 600,000
2 Billing to be reported in balance sheet
Current assets
Accounts receivable $        400,000
Inventory
Construction in process $            600,000
Less: billing                400,000
cost and recognized profit in excess of billings            200,000

ekkarill92 answered 7 months ago
Next > < Previous

Related Solutions

1. 14 marks Contract price $ 3,140,000 Total estimated construction cost at contract inception $ 2,305,000...
1. 14 marks Contract price $ 3,140,000 Total estimated construction cost at contract inception $ 2,305,000 2020 2021 2022 Total costs incurred to date $ 691,500 $ 1,540,500 $ 2,350,000 Estimated costs to complete $ 1,613,500 $ 829,500 $ - Customer billings to date $ 625,000 $ 2,175,000 $ 3,140,000 Collections to date $ 600,000 $ 1,790,000 $ 2,899,000 Required: 1. Calculate the gross profit that should be recognized for 2020, 2021, and 2022, using the percentage of completion method....
You work at a company that is currently under a Distributed Denial of Services attack, performed...
You work at a company that is currently under a Distributed Denial of Services attack, performed by a very large botnet. You discover the vulnerability that would allow all of the bots attacking you to become compromised. You can use this vulnerability to clean these botnets or get them to stop listening to commands to attack you. Would you perform these actions? Is one more palatable to you than the other? What code of ethics are you basing this decision...
On July 1, 2020, a company borrows $500,000 under a long-term loan. The $500,000 will be...
On July 1, 2020, a company borrows $500,000 under a long-term loan. The $500,000 will be paid back in five annual instalments of $100,000 each, starting on June 30, 2021. What will be the company's long-term loan balance, shown in the long-term liability section of its statement of financial position, at December 31, 2021? a)$400,000. b)$350,000. c)$300,000. d)Cannot tell, as the interest rate on the loan has not been provided
Long-term Contracts Koolman Construction Company began work on a contract in 2017. The contract price is...
Long-term Contracts Koolman Construction Company began work on a contract in 2017. The contract price is $3,000,000, and the company determined that its performance obligation was satisfied over time. Other information relating to the contract is as follows: 2017 2018 Costs incurred during the year $ 600,000 $ 700,000 Estimated costs to complete, December 31 $1,400,000 $1,200,000 Billings during the year $500,000 $850,000 Collections during the year $400,000 $800,000 Required: 1. Compute the gross profit or loss recognized in 2017...
Long-term Contracts Koolman Construction Company began work on a contract in 2017. The contract price is...
Long-term Contracts Koolman Construction Company began work on a contract in 2017. The contract price is $3,000,000, and the company determined that its performance obligation was satisfied over time. Other information relating to the contract is as follows: 2017 2018 Costs incurred during the year $ 600,000 $ 700,000 Estimated costs to complete, December 31 $1,400,000 $1,200,000 Billings during the year $500,000 $850,000 Collections during the year $400,000 $800,000 Required: 1. Compute the gross profit or loss recognized in 2017...
ABC Construction has the following contract: Contract price 1,000,000 Cost incurred cost to complete Dec 31...
ABC Construction has the following contract: Contract price 1,000,000 Cost incurred cost to complete Dec 31 2017 200,000 600,000 Dec 31 2018 350,000 250,000 Dec 31 2019 300,000 850,000 Billings Cash Received Dec 31 2017 250,000 200,000 Dec 31 2018 400,000 350,000 Dec 31 2019 350,000 450,000 1,000,000 1,000,000 A. Prepare a % of completion schedule for the three years B. Prepare journal entries for 3 years
Steve Woods performed an audit on the ABC corporation and issued an unqualified report. Steve performed...
Steve Woods performed an audit on the ABC corporation and issued an unqualified report. Steve performed the audit with due care and in accordance with GAAS. Three months later, he discovers on the news that the CEO of ABC, has been stealing small amounts of inventory. The amount was not material compared to the overall inventory of the corporation. The CFO, Mr. Big called Steve and he asks for Steve to refund the audit fees because Steve did not perform...
In looking at damages that can be received when a contract is not performed, there are...
In looking at damages that can be received when a contract is not performed, there are various types of penalties that might be imposed, with some involving monetary damages and others involving equitable remedies such as specific performance. In looking at the various types of damages, discuss the pros and cons of seeking an equitable remedy as opposed to monetary damages and do the pros outweigh the cons or would it have just been easier to seek monetary compensation? This...
ABC Company bought a new machine that cost $500,000 on 1/1/15. The machine had a useful...
ABC Company bought a new machine that cost $500,000 on 1/1/15. The machine had a useful life of 10 years. ABC Company used straight-line depreciation with an estimated salvage value of $0. ABC Company is subject to an income tax rate of 40%. ABC Company sold the machine on 1/1/18 (after using the machine for exactly 3 full years. In the next 3 questions, you are to determine the Net Cash Inflow (NCF) from the sale of the machine on...
Red Builders agrees to construct a new building for Blue Co. for a total contract price...
Red Builders agrees to construct a new building for Blue Co. for a total contract price of $6,000,000. The estimated construction costs at inception was $4,000,000. The construction project was completed after two years. Below are the actual costs for years 1 and 2: Description Cumulative Year 1 Year 2 Cost incurred to date 1,200,000 2,500,000 Estimated additional costs to complete 3,600,000 2,100,000 Billings 1,050,000 2,300,000 Cash Collections 1,000,000 1,900,000 Red has determined that this contract qualifies for revenue recognition...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT