course hero 24 - Construction in progress: $65,000 Less...

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Example 5 In 2007, Beth Botsford Construction Corp. began construction work under a 3-year contract. The contract price was $1,000,000. Beth Botsford uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing recognized each year is based on the proportion of cost incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2007, follow. Balance sheet Accounts receivable- construction contract billings $21,500
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Unformatted text preview: Construction in progress: $65,000 Less contract billings : $61,6500 Cost of uncompleted contract in excess of billings 3,500 Income statement Income on the contract recognized in 2007 $18,200 EXERCISE -5 (1015 minutes) (a) Contract billings to date $61,500 Less: Accounts receivable 12/31/07 21,500 Portion of contract billings collected $40,000 (b) $18,200 $65,000 = 28% (The ratio of gross profit to revenue recognized in 2007.) $1,000,000 X .28 = $280,000 (The initial estimated total gross profit before tax on the contract.) 18-18...
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