Question

In 2014, Omega Construction began work on a contract with a price of $850,000 and estimated costs of $595,000.

Data for each year of the contract are as follows:
2014 2015 2016
Costs incurred during the year $238,000 $319,600 $105,000
Estimated costs to complete $357,000 $139,400 -0-
Partial billings $260,000 $210,000 $380,000
Collections $240,000 $200,000 $410,000
Refer to Exhibit 17-1.
Under the percentage-of-completion method of revenue recognition , "the balance in Construction in Progress at the end of 2015" would be:
A) $20,000
B) $40,000
C) $60,000
D) $80,000

Answer 1

The balance of Construction in Progress at the end of 2015 using the percentage-of-completion method cannot be determined from the information given, as we lack the data on total revenue earned relative to the percentage of work completed.

Step-by-step explanation:

Under the percentage-of-completion method of revenue recognition, the balance in Construction in Progress (CIP) at the end of 2015 can be calculated using the total costs incurred to date and the proportion of revenue earned based on the progress of the construction. The percentage of completion is determined by dividing the costs incurred to date by the total estimated costs. By the end of 2015, Omega Construction Inc. had incurred costs of $238,000 in 2014 plus $319,600 in 2015, which totals $557,600. However, the information provided does not allow us to calculate the exact balance of the CIP account at the end of 2015, as we would need the total revenue earned to date based on the contract price and the percentage of completion. Without additional data, it is not possible to answer which among the options A) $20,000, B) $40,000, C) $60,000, or D) $80,000 is correct.