Asked by Herantha Wickramasekera on May 12, 2024
Verified
Refer to Exhibit 18-1.Under the percentage-of-completion method of revenue recognition, the balance in Construction in Progress at the end of 2011 would be
A) $557, 600
B) $659, 600
C) $680, 000
D) $782, 000
Percentage-Of-Completion
An accounting method used to recognize revenue and expenses of long-term projects proportionally with the degree of completion.
Construction In Progress
An account representing the costs associated with constructing long-term, fixed assets that are not yet completed and ready for use.
Costs Incurred
Represents the expenses that a company or individual has realized in the process of conducting business or carrying out a specific activity.
- Examine the implications of recognizing revenue on net assets and the valuation of inventory.
- Comprehend the ideas surrounding the expenses incurred from extended contracts and their identification.
Verified Answer
RR
Redencion ReyesMay 13, 2024
Final Answer :
C
Explanation :
To calculate the balance in Construction in Progress using the percentage-of-completion method, we need to first calculate the total cost incurred up to the end of 2011, which is $440,000 (2011 costs) + $250,000 (2010 costs) = $690,000. We also need to calculate the total estimated costs for the entire project, which is $595,000 (original estimated costs) * 1.1 (to adjust for the change in estimate) = $654,500.
Next, we can calculate the percentage of completion at the end of 2011:
Percentage of completion = Total cost incurred / Total estimated costs
= $690,000 / $654,500
= 1.0541 (rounded to four decimal places)
Finally, we can calculate the balance in Construction in Progress:
Balance in Construction in Progress = Contract price * Percentage of completion - Total billings to date
= $850,000 * 1.0541 - $170,000 (2010 billings) - $0 (2011 billings)
= $680,000.
Therefore, the best choice is C.
Next, we can calculate the percentage of completion at the end of 2011:
Percentage of completion = Total cost incurred / Total estimated costs
= $690,000 / $654,500
= 1.0541 (rounded to four decimal places)
Finally, we can calculate the balance in Construction in Progress:
Balance in Construction in Progress = Contract price * Percentage of completion - Total billings to date
= $850,000 * 1.0541 - $170,000 (2010 billings) - $0 (2011 billings)
= $680,000.
Therefore, the best choice is C.
Learning Objectives
- Examine the implications of recognizing revenue on net assets and the valuation of inventory.
- Comprehend the ideas surrounding the expenses incurred from extended contracts and their identification.