Question
Noah Construction Company is building a large complex for a contract price of $5,000,000. This is a three-year project and the requirements for recognizing revenue
Noah Construction Company is building a large complex for a contract price of $5,000,000. This is a three-year project and the requirements for recognizing revenue over time are met. The total estimated cost of the project is $4,000,000 and the following information is available:
($ in thousands) | Year 1 | Year 2 | Year 3 | ||||||||
Costs incurred | $ | 1,000 | $ | 1,500 | $ | 1,250 | |||||
Estimated completion costs | $ | 3,000 | $ | 1,500 | $ | 0 | |||||
Billings | $ | 750 | $ | 1,750 | $ | 2,500 | |||||
Cash collected | $ | 500 | $ | 1,500 | $ | 3,000 | |||||
Using revenue recognition standards prior to ASC Topic 606, which one of the following entries would be made in Year 3 to record the completion and acceptance of the project using the completed-contract method of revenue recognition?
Multiple Choice
DR Inventory: Construction in progress $3,750,000 DR Income on long-term construction contract $1,250,000 CR Billings on construction in progress $5,000,000
DR Billings on construction in progress $1,250,000 CR Inventory: Construction in progress $1,250,000
DR Billings on construction in progress $5,000,000 CR Inventory: Construction in progress $3,750,000 CR Income on long-term construction contract $1,250,000
DR Inventory: Construction in progress $5,000,000 CR Billings on construction in progress $5,000,000
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