Exercise 18-34 In 2017, Bonita Construction Corp. began construction work under

Question

Exercise 18-34 In 2017, Bonita Construction Corp. began construction work under a 3-year contract. The contract price was $1,060,000. Bonita uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2017, are shown below. Balance Sheet Accounts receivable Construction in process Less: Billings Costs and recognized profit in excess of billings $17,700 $68,300 61,300 7,000 Income Statement Income (before tax) on the contract recognized in 2017 (a) How much cash was collected in 2017 on this contract? Portion of contract billings collected $16,392 (b) What was the initial estimated total income before tax on this contract? Income before tax on this contract

Explanation / Answer

A. Cash Collected =Total Billing-Account receivables

=61,300-17,700

=43600

Explanation: Since cash will be received aganist the billing. And $ 17700 is the balance of account receivable i.e. that amount has not been received which alternatively means remaining amount has been received. So, $ 43600 has been received in cash.

B. Initial estimated total income = (16392/68300)*1060000

=$ 254400

Explanation: Since construction in process account is nothing but the sum total of cost incurred + profit during the given period. We can calculate the income by taking that income as base.

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