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1. ABC expends $500,000 for work performed under a contract witha total contract price...

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Accounting

1. ABC expends $500,000 for work performed under a contract witha total contract price of $3 million and estimated costs of $2.5million. It sends a bill to the customer for $400,000 under theterms of the contract.

a. How much revenue and gross profit should the companyrecognize in the income statement?

b. How is the $400,000 billing reported on the balancesheet?

Answer & Explanation Solved by verified expert
3.6 Ratings (272 Votes)

Percentage of completion is used:
1 Total Contract price $    3,000,000
Cost incurred                500,000
Add: estimated cost to be incurred            2,000,000        2,500,000
Estimated Gross Profit            500,000
x percentage complete x 20%*
Gross profit to be recognized $        100,000
*500000÷ 2500000 = 20%
Revenue to be recognized = 3000000 x 20% = 600,000
2 Billing to be reported in balance sheet
Current assets
Accounts receivable $        400,000
Inventory
Construction in process $            600,000
Less: billing                400,000
cost and recognized profit in excess of billings            200,000

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In: Accounting1. ABC expends $500,000 for work performed under a contract witha total contract price of...1. ABC expends $500,000 for work performed under a contract witha total contract price of $3 million and estimated costs of $2.5million. It sends a bill to the customer for $400,000 under theterms of the contract.a. How much revenue and gross profit should the companyrecognize in the income statement?b. How is the $400,000 billing reported on the balancesheet?

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