Arizona Desert Homes (ADH) constructed a new subdivision during 2017 and 2018 un
ID: 2563627 • Letter: A
Question
Arizona Desert Homes (ADH) constructed a new subdivision during 2017 and 2018 under contract with Cactus Development Co. Relevant data are summarized below:
Arizona Desert Homes (ADH) constructed a new subdivision during 2017 and 2018 under contract with Cactus Development Co. Relevant data are summarized below:
Contract amount
$
2,775,000
Cost:
2017
1,150,000
2018
550,000
Gross profit:
2017
725,000
2018
350,000
Contract billings:
2017
1,387,500
2018
1,387,500
ADH recognizes revenue upon completion of the contract.
In its December 31, 2017, balance sheet, ADH would report:
A. The contract liability, billings in excess of cost, of $237,500.
B. The contract asset, cost and profits in excess of billings, of $487,500.
C. The contract asset, deferred profit, of $350,000.
D. The contract asset, contract amount in excess of billings, of $1,387,500.
Contract amount
$
2,775,000
Cost:
2017
1,150,000
2018
550,000
Gross profit:
2017
725,000
2018
350,000
Contract billings:
2017
1,387,500
2018
1,387,500
Explanation / Answer
Answer is A. The contract liability, billing in excess of cost, of $ 237,500
The explanation is as follows: The company recognize revenue upon completion of contract. Therefore, in the year 2017, wheer the contract is under progress, the billings made to the extent of $ 1387,500 will be shown as liability net of cost incurred incurred under the contract $ 1150,000 . Therefore, net liability of $ 237,500 will be shown.
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