In 2017, Ayayai Construction Corp. began construction work under a 3-year contra

Question

In 2017, Ayayai Construction Corp. began construction work under a 3-year contract. The contract price was $1,040,000. Ayayai 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

Income Statement

(a) How much cash was collected in 2017 on this contract?

(b) What was the initial estimated total income before tax on this contract?

Balance Sheet

Accounts receivable $18,400 Construction in process $70,400 Less: Billings 64,800 Costs and recognized profit in excess of billings 5,600

Explanation / Answer

(a) How much cash was collected in 2017 on this contract:

(b) What was the initial estimated total income before tax on this contract:

Ratio of gross profit to revenue recognized in 2017.= $24,640 / $70,400 = 35%

Initial estimated total gross profit before tax on the contract = $1,040,000 X 35% = $364,000

Contract billings to date $64,800 Less: Accounts receivable 12/31/17 $18,400 Portion of contract billings collected $46,400

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