Tullis Construction enters into a long-term fixed price contract to build an off

Question

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,000,000. In the first year of the contract Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $4,000,000 in year 1 and collected $3,500,000 by the end of the end of the year. 20. How should Tullis report Construction in Progress and Billings on Construction in Progress at the end of Year 1 on the balance sheet assuming the use of the percentage-of-completion method? A. liability of $250,000 B. liability of $4,000,000 C. asset of $0 D. asset of $3,000,000 Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,000,000. In the first year of the contract Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $4,000,000 in year 1 and collected $3,500,000 by the end of the end of the year. 20. How should Tullis report Construction in Progress and Billings on Construction in Progress at the end of Year 1 on the balance sheet assuming the use of the percentage-of-completion method? A. liability of $250,000 B. liability of $4,000,000 C. asset of $0 D. asset of $3,000,000

Explanation / Answer

= 3/8 * 100% = 37.5 %  

Revenue recognised = 37.5% of $10,000,000 = $ 3750000

Revenue earned = $ 4000000

Hence, liability = $ 4000000 - $ 375000 = $ 250,000

Option A

Percentage of Work Completed = Expenditures Incurred from Inception to Date / Total Estimated Costs for the Contract

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