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?

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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?