Question

Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $1,240,000 each quarter. The total contract price is $14,880,000 and Seasons estimates total costs of $14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014.

At December 31, 2014, Seasons estimates that it is 30% complete with the construction, based on costs incurred. What is the total amount of Revenue from Long-Term Contracts recognized for 2014 and what is the balance in the Accounts Receivable account assuming Cannon Cafe has not yet made its last quarterly payment?

Revenue Accounts Receivable
a. $4,260,000
$4,960,000


b. $4,960,000
$4,960,000


c. $4,260,000
$ 1,240,000


d. $4,464,000
$ 1,240,000

Answer 1

The revenue recognized for 2014 from long-term contracts is $4,464,000 and the balance in the Accounts Receivable account is $372,000.

Step-by-step explanation:

Revenue from Long-Term Contracts

To calculate the revenue from long-term contracts recognized for 2014, we need to determine the percentage of completion and apply it to the total contract price. Based on the information given, Seasons estimates they are 30% complete with the construction at December 31, 2014. Therefore, the revenue recognized for 2014 would be 30% of the total contract price: 0.3 x $14,880,000 = $4,464,000.

Accounts Receivable

The balance in the Accounts Receivable account is the amount that Cannon Company owes to Seasons Construction for the completed work up until December 31, 2014, which is 30% of the total contract price: 0.3 x $1,240,000 = $372,000.

Therefore, the total amount of Revenue from Long-Term Contracts recognized for 2014 is $4,464,000 and the balance in the Accounts Receivable account is $372,000.