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 net amount" reported for construction in progress inventory at the end of 2015 would be:
A) $50,000
B) $70,000
C) $90,000
D) $110,000

Answer 1

To find the net amount reported for construction in progress using the percentage-of-completion method, we calculate the percentage of completion, multiply it by the contract price, and then subtract billings. The total costs incurred by the end of 2015 were $557,600, and when divided by the total estimated cost of $734,400, it results in a completion percentage of approximately 75.9%. The net amount reported for construction in progress at the end of 2015 is thus calculated as $175,150.

Step-by-step explanation:

To calculate the net amount reported for construction in progress inventory at the end of 2015 using the percentage-of-completion method, we would first determine the percentage of completion for the year by taking the total costs incurred to date and dividing them by the original contract cost estimate plus costs incurred to date. As of the end of 2015, the costs incurred were $238,000 in 2014 plus $319,600 in 2015, totaling $557,600. The total estimated costs were initially $595,000, and an additional $139,400 was estimated to complete the project at the end of 2015, putting the total estimated costs at $734,400 ($595,000+$139,400).

The percentage of completion would then be calculated as $557,600 / $734,400, which gives us approximately 0.759 or 75.9%. The revenue recognized to date is then the contract price of $850,000 multiplied by 75.9%, which equals $645,150. Now, we must calculate the net amount reported for construction in progress by subtracting the billings from the revenue recognized to date. The partial billings up to the end of 2015 were $260,000 in 2014 and $210,000 in 2015, totaling $470,000. Therefore, the net amount reported for construction in progress is $645,150 (revenue recognized) - $470,000 (billings) = $175,150.

However, none of the answer choices match this calculation, which suggests either that there might be additional contextual information or a need to correct the given answer choices. Since the calculated net amount of $175,150 is not listed, we should reassess the provided data or await further instructions.