Wood Construction has contracted to build an office building. At the time of the signing of the contract the cost is estimated to be $50,000,000 and the contract price is $90,000,000. The following data relate to the first two years of the construction period.
Cost during the year $10,000,000 $15,000,000
Estimated costs to complete 40,000,000 35,000,000
Billings during the year 7,000,000 13,000,000
Cash collected during the year 7,000,000 11,000,000
A. Compute the gross profit to be recorded for 2013 AND 2014 (assume the percentage of completion method).
90-50 = 40 gp 90 â€“ 60 = 30 gp
40 x 10/50 = 8 30 x 25/60 = 12. ...view middle of the document...
31, 2014. Assume completed contract method.
_______25_________ Costs of 10 and 15
1.Ward, a consultant, keeps her accounting records on a cash basis. During 20X2 Ward collected $200,000 in fees from clients. At December 31, 20X1, Ward had accounts receivable of $40,000. At December 31, 20X2, Ward had accounts receivable of $60,000. On an accrual basis, what was Ward's service revenue for 20X2?
d. $220,000 D is correct
2. The revenue recognition principle provides that revenue is recognized when
a. it is realized.
b. it is realizable.
c. it is realized or realizable and it is earned. C is correct
d. none of these.
3. Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract. In this case, the entire expected loss should be
a. recognized in the current period, regardless of whether the percentage-of-completion or completed-contract method is employed.
b. recognized in the current period under the percentage-of-completion method, but the completed-contract method should defer recognition of the loss to the time when the contract is completed.
c. recognized in the current period under the completed-contract method, but the percentage-of-completion method should defer the loss until the contract is completed.
d. deferred and recognized when the contract is completed, regardless of whether the
percentage-of-completion or completed-contract method is employed
A is correct
4. When using the percentage-of-completion method of accounting for long-term contracts, the percentage of completion used to recognize gross profit in the first year usually is determined by measuring:
a. Costs incurred in the first year, divided by estimated remaining costs to complete the
b. Costs incurred in first year, divided by estimated total costs of the completed project.
c. Costs incurred in first year, divided by estimated gross profit.
d. None of the other answers is correct.
B is correct