Testy Construction Company $($Testy$)$ started operations on $1/1/06.$ Testy was awarded the contract for Project $101$ during the first month of operations. Bid price was $$300,000$ with estimated construction costs being $$240,000.$ At the end of the first month of operations, the revenue earned from Project $101$ was $$200,000.$ Subcontract cost was $$80,000,$ Material cost was $$50,000,$ and Labor $($Wages$)$ was $$30,000.$

The balance sheet for the first month of operations $($period ending $1/31/06)$ follows:

ASSETS

EQUITIES

Cash

$50,000$

Accounts Payable

$50,000$

Accounts Receivable

$198,000$

Subs Payable

$72,000$

Retainage Receivable

$22,000$

Retainage Payable

$8,000$

Supplies Inventory

$2,000$

Overbilling

$20,000$

Prepaid Insurance

$5,000$

Wage Payable

$10,500$

Equipment $($Gross$)$

$24,000$

Note Payable

$50,000$

Less: Accum. Dep.

$<-400>$

Taxes Payable

$12,710$

Equipment $($Net$)$

$23,600$

Paid$-$In Capital

$58,325$

Retained Earnings

$19,065$

Total Assets

$300,600$

Total Equities

$300,600$

During the second month of operations American completed all work on Project $101($no more costs$).$ In addition, Testy began a new project $($Project $102).$ Contract amount was $$500,000.$ Estimated cost at time of bid included subcontract costs of $$200,000,$ Material cost of $$120,000,$ and Labor cost $($wages$)$ of $$80,000.$ Financial transactions for the second month of operations included the following:

Received payment of $1$st month's progress billing from owner of Project $101$ in the amount of $$198,000.$

Paid account with material supplier, $$50,000.$

Paid $1$st month's progress billing from subcontractors, $$72,000.$

Payroll disbursements: Project $101-$ $$15,000$; Project $102-$ $$48,000,$ Office Wages $-$ $$2,000$; Salaries $-$ $$3,000.($Note: $$10,000$ paid for accrued labor last month on Project $101$; $$500$ for accrued office wages last month.$)$

Labor cost incurred but not paid; Project $102-$ $$10,000$; Office Wages $-$ $ $500.$

Materials costing $$20,000$ for Project $101$ and $$62,000$ for Project $102$ were purchased on account.

A subcontract billing for $$65,000$ was received for Project $101,$ and $$80,000$ for Project $102.(10\%$ retainage on both contracts.$)$

Progress billings: Project $101-$ $$80,000$ and Project $102$ $$225,000.(10\%$ Retainage on both contracts.$)$

Interest payment made on simple interest loan, $$625.$

Supplies used from inventories, $$100.$

Insurance expired, $$500.$

Depreciation on equipment, $$400.$

Miscellaneous cash disbursements $-$ $$1000$ for rent of office space, $$500$ utilities, $$100$ advertising.

Revenue recognized using percentage of completion.

Income tax accrued but not paid. Annual rate $-40\%.$

The proper entry for Transaction $8$ is:

Question $24$ options:

$1)$

Debit accounts receivable $$274,500,$ retainage receivable $$30,500$; credit progress billings $$305,000$

$2)$

Debit progress billings $$305,000$; credit earnings $$305,000$

$3)$

Debit accounts receivable $$305,000$; credit progress billings $$305,000$

$4)$

Debit earnings $$305,000$; credit progress billings $$305,000$