On January 1, 20x6, Bad, a real estate company, entered into a contract to construct asubdivision on a piece of land it has acquired and, when construction is complete, to deliverthe finished houses to their customers. The following data pertains to the said contract eachcustomer is to sign. Each house costs $4,000,000 each (a total of 10 houses are to beconstructed). Construction will take 2 years to complete. Payment terms are 50% by the endof the 1st year, 25% at the end of the 2nd year and the balance will be paid after 3 monthsfrom the final turn-over. The client can transfer the contract to another, should they not feelsatisfied with the house on or before the house is 50% complete.The company incurred the following expenses for 20x6.Total cost of land - $2,000,000;Estimated total cost of construction - $25,000,000, (including the costs for the common areas,streets and light posts amounting to $5,000,000);Estimated total cost of contract for the 10 houses - $40,000,000;In CY 20x6, total construction cost incurred amount to $13,000,000 with all common areasalready fully constructed, while fair value of the land is now worth $3,500,000. The contractis considered to be a multiple contract.How much is included as current asset in the financial statements of Bad related to theabove information?

As per the fundamental accountiing principle a revenue should be recogniised only when it is earned.…

shed houses to their customers. The following dat er is to sign. Each house costs $4,000,000 eac cted). Construction will take 2 years to complete. st year, 25% at the end of the 2nd year and the e final turn-over. The client can transfer the contr d with the house on or before the house is 50% co

shed houses to their customers. The following dat er is to sign. Each house costs $4,000,000 eac cted). Construction will take 2 years to complete. st year, 25% at the end of the 2nd year and the e final turn-over. The client can transfer the contr d with the house on or before the house is 50% co

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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