E18-5 (Analysis of Perecentage-Completion Financial Statements) In 2007, Beth Bo

Question

E18-5 (Analysis of Perecentage-Completion Financial Statements) In 2007, Beth
Botsford Construction Corp. began construction work under a 3-year contract. The
contract price was $1,000,000. Beth Botsford 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, 2007, follow.

Balance Sheet

Accounts receivable - construction contract billings $21,500
Construction in progress $65,000
Less: Contract billings 61,500
Cost of uncompleted contract in excess of billings 3,500

Income Statement

Income (before tax) on the contract recognized in 2007 $18,200

Instructions

(a) How much cash was collected in 2007 on this contract?
(b) What was the initial estimated total income before tax on this contract?

Explanation / Answer

a) Contraact billings $61,500 Less Accounts receiv(21500) Cash collected $40,000 b) 18,200/65,000=.28 or 28% $1,000,000*.28=$280,000

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