As the owner of Faulty Towers Construction, Inc. you have a contract to build an

Question

As the owner of Faulty Towers Construction, Inc. you have a contract to build an eight story dormitory for University of Mecosta (UM). You have the following terms and conditions: I. Owner will pay your invoices one month after the work is performed, less 10% retention. IL Subcontractors will be paid the same month you are paid by the owner, less 10% retention. III. Final payment by owner will occur in month following completion. IV. Labor is paid in the month incurred. V. Total contract price is $100,000. VI. Dormitory must remain in a usable and safe condition for a minimum of two years. Your accountant has prepared the following table: Month LahorS Subk S Total S Cot Bileds 5,000 15,000 20,000 22,000 10,000 20,000 30,000 35,000 15,000 20,000 35,000 43,000 30,000 55,000 85,000100,000 Total 27) What is the net cash flow for month 1? A) ($20,000) B) ($15,000) C) ($ 5,000) D) $22,000 28) What is the net cash flow for month 3? A) $8,000 B) ($3,700) C) ($1,500) D) $5,000 29) What is the amount paid to subcontractors during month 4? A) $0 B) $23,500 C) $20,000 D) $22,000 30) What is the net cash flow for month 4? A) S 8,000 B) $15,000 C) $25,200 D) $20,000

Explanation / Answer

Solution:

Month 1:

Receipt against Billing – Nil

Payment to sub-contractor – Nil

Payment to labor = $5,000

Net cash Flow = ($5,000)

Month 3:

Receipt against Billing – 35000*90% = $31,500

Payment to sub-contractor – 20000*90% = $18,000

Payment to labor = $15,000

Net cash Flow = $31,500 - $18,000 - $15,000 = ($1,500)

Month 4:

Receipt against Billing – 43000 + (22000*10%) + (35000*10%) = $48,700

Payment to sub-contractor – 20000 + (15000*10%) + (20000*10%) = $23,500

Net cash Flow = $48,700 - $23,500 = $25,200

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