Question

Blue Co. had the following first-year amounts related to its $12,000,000 construction contract: Actual costs incurred and paid $ 3,000,000 Estimated costs to complete 6,000,000 Progress billings 3,500,000 Cash collected 3,100,000 Assuming the contract qualifies for revenue recognition while the performance obligations are being satisfied, excluding cash, what total amount should Blue Co. recognize as current assets at year end?

Answer 1

$900,000

Step-by-step explanation:

% completion during the year:

= Actual costs incurred and paid ÷ (Actual costs incurred and paid + Estimated costs to complete)

= $3,000,000 ÷ ($3,000,000 + $6,000,000)

= 33.3333%

Total revenue to be recognized for the year:

= Amount of construction contract × % completion during the year

= $12,000,000 × 33.33333%

= $4,000,000

Actual cost incurred and paid = $3,000,000

Profit for the year:

= Total revenue to be recognized for the year - Actual cost incurred and paid

= $4,000,000 - $3,000,000

= $1,000,000

Accounts receivables at the end of year:

= Billings - Cash Collection

= $3,500,000 - $3,100,000

= $400,000

Cost and profits in excess of billings:

= ($3,000,000 + $1,000,000) - $3,500,000

= $500,000

Total amount of current assets to be recognize at year end:

= Accounts receivables at the end of year + Cost and profits in excess of billings

= $400,000 + $500,000

= $900,000