In 2021, Long Construction Corporation began construction

In 2021, Long Construction Corporation began construction work under a three-year contract. The contract price is $1,800,000. Long recognizes revenue over time according to percentage of completion for financial reporting purposes. The financial statement presentation relating to this contract at December 31, 2021, is as follows:

Required:

1. What was the cost of construction actually incurred in 2021?

2. How much cash was collected in 2021 on this contract?

3. What was the estimated cost to complete as of the end of 2021?

4. What was the estimated percentage of completion used to calculate revenue in 2021? (Round your percentage answer decimal places.)

1. Actual costs incurred in 2021

2. Cash collections in 2021 $ 84,000

3. Estimated cost to complete

4. Estimated percentage

Solution:

1. Construction in process = Cost incurred + profit recognized.

=> Cost incurred = $120,000 – 22,000 = $98,000.

2. cash Collection in 2021 :-

=>Billings = Cash Collections + Account receivables.

=> Cash Collections = $116,000 – 32,000 = $84,000.

3. Estimated cost to complete :-

Let A =Actual cost incurred + Estimated cost to complete

=>(Actual cost incurred/A) × (Contract prices-A) = Profit recognized.

=>$98,000 /A) * ($1,800,000 – A) = $22,000.

=>$176,400,000,000 – $98,000A = 22,000A

A= $1,470,000.

Estimated cost to complete = $1,470,000 – 98,000 = $1,372,000.

4. Estimated Percentage :-=> Actal cost incurred ÷(Cost incurred + Estimated cost to complete).

=> $98,000 ÷ (98,000 + $1,470,000) = 6.25%

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