Question

Please explain to me how they calculating 10.4 M , 1.4M and also 4.4M A construction company entered into a fixed-price contract to build an office building for $26 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. During the first year the company billed its customer $9 million, of which $3 million was collected before year-end. What would appear in the year-end balance sheet related to this contract using the percentage-of-completion method? (Enter your answers in whole dollars.) Assets: Accounts receivable $6,000,000 Costs plus profit in excess of billings $1,400,000 Explanation: Assets: Accounts receivable ($9 million – 3 million) = $6,000,000 Cost plus profit ($6 million + $4.4 million*) in excess of billing ($9 million) = $1,400,000 * First year gross profit = $10,400,000 – 6,000,000 = $4,400,000

Answer 1

	Show the yr end Balance Sheet related to the contract using the percentage of completion method
1	Calculate the total estimated profit under the percentage of completion method
	Total Contract Price	$26	million
	Total Cost	Cost incurred during the first yr +estimated costs to complete
		$6+$9	Million
		$15	Million
	Total Estimated Profit	Contract Price -Total Cost
		$26 million-$15 million
		$11 million
2	Calculate the percentage of completion
	% of completion	Costs incurred during the first yr/total cost *100
		$6 million/$15 million *100
		40%
3	Calculate profit to be recognized
	Profit to be recognized	Total Estimated profit * % of completion
		$11 million *40%
		$4.4 million
	Compute the yr end Balance that appears on Balance Sheet
	Accounts Receivable	Amount Billed -Amount Collected
		$9 million-$3 million
		$6 million
	Gross amount due from customer
		Profit recognized +cost incurred -amount billed
		$4.4 million +$6 million-$9 million
		$10.4-$9 million
		$1.4 million
	Prepare Balance Sheet
		Balance Sheet
		Assets	Amount $
		Accounts Receivable	$ 6 million
		Gross amount due from customers	$1.4 Million
		Total	$7.4 million