Noah Construction Company is building a large complex for a contract price of $5,000,000. This is a three-year project and the requirements for recognizing revenue over time are met. The total estimated cost of the project is $4,000,000 and the following information is available: ($ in thousands) Year 1 Year 2 Year 3 Costs incurred $ 1,000 $ 1,500 $ 1,250 Estimated completion costs $ 3,000 $ 1,500 $ 0 Billings $ 750 $ 1,750 $ 2,500 Cash collected $ 500 $ 1,500 $ 3,000
Noah Construction Company is building a large complex for a contract price of $5,000,000. This is a three-year project and the requirements for recognizing revenue over time are met. The total estimated cost of the project is $4,000,000 and the following information is available: ($ in thousands) Year 1 Year 2 Year 3 Costs incurred $ 1,000 $ 1,500 $ 1,250 Estimated completion costs $ 3,000 $ 1,500 $ 0 Billings $ 750 $ 1,750 $ 2,500 Cash collected $ 500 $ 1,500 $ 3,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Noah Construction Company is building a large complex for a contract price of $5,000,000. This is a three-year project and the requirements for recognizing revenue over time are met. The total estimated cost of the project is $4,000,000 and the following information is available:
| ($ in thousands) | Year 1 | Year 2 | Year 3 | ||||||||
| Costs incurred | $ | 1,000 | $ | 1,500 | $ | 1,250 | |||||
| Estimated completion costs | $ | 3,000 | $ | 1,500 | $ | 0 | |||||
| Billings | $ | 750 | $ | 1,750 | $ | 2,500 | |||||
| Cash collected | $ | 500 | $ | 1,500 | $ | 3,000 | |||||
Which one of the following entries would be made in Year 1 to record the income recognized assuming that revenue is recognized over time?
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DR Inventory: Construction in progress $250,000 DR Construction expense $1,000,000 CR Construction revenue $1,250,000Correct
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DR Inventory: Construction in progress $375,000 CR Billings on construction in progress $375,000Incorrect
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DR Inventory: Construction in progress $675,000 CR Billings on construction in progress $675,000
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DR Income on long-term construction contract $3,125,000 CR Accounts payable, cash, etc. $3,125,000
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