Tullis Construction enters into a long-term fixed price contract to build an off

Question

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,000,000. In the first year of the contract Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $4,000,000 in year 1 and collected $3,500,000 by the end of the end of the year. How should Tullis report Construction in Progress and B?ll?ngs on Construction in Progress at the end of Year1 on the balance sheet assuming the use of the percentage-of-completion method? A liability of $250,000 B. liability of $4,000,0co C asset of$o D. asset of $3,00O,CCO

Explanation / Answer

Consturction in Progress = Exp incurred in the year + Income recognized

    Exp incur = $ 3000000

Income Recognised = Total Income * % of completion

Total income = 10000000 – 8000000 = 2000000

% of completion = cost incur/(cost incur + estimated cost)

   = 3000000/(3000000 + 5000000) = 37.5%

Income recognized = 2000000 * 37.5% = 750000

CIP = 3000000 + 750000 = 3750000

Billing = $ 4000000

In balance sheet:-

Liability = Billings – CIP

   = 4000000 – 3750000 = $250000

Option A is correct

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