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16 January, 14:26

A construction company entered into a fixed-price contract to build an office building for $16 million. Construction costs incurred during the first year were $3 million and estimated costs to complete at the end of the year were $7 million. During the first year the company billed its customer $3 million, of which $1 million was collected before year-end. What would appear in the year-end balance sheet related to this contract using the percentage-of-completion method

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  1. 16 January, 14:42
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    On the balance sheet it will appear:

    account receivable 2,000,000

    unbilled contract revenue 1,800,000

    Explanation:

    Using percentage of completion method:

    3,000,000 cost incurred + 7,000,000 cost to complete = 10,000,000 total cost

    3,000,000/10,000,000 = 30%

    16,000,000 revenue x 30% = 4,800,000 millions

    cash 1,000,000

    account receivable 2,000,000

    unbilled contract receivable 1,800,000

    contract revenue earned 4,800,000
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