AEcom Construction Company was awarded a contract for $1,200,000 to construct a small retail development. Redbird Co.
Question:
AEcom Construction Company was awarded a contract for $1,200,000 to construct a small retail development. Redbird Co. estimates its total cost on the job to be $1,000,000. During the first month of the project, the following transactions occur:
• Cash of $20,000 is paid for permits, fees, and other startup costs
• An invoice is received from the excavation contractor for $15,000
• The first progress invoice is prepared for $110,000
1) Utilizing the cost-to-cost method, determine the profit that should be recognized to date under a percentage of completion accounting system.
- A. $12,000
- B. $110,000
- C. $7,000
- D. $75,000
2) Consider the following billing cycle for a given project. Assuming retention as stated in the contract is 10%, please solve for Box B.
| Month | ||||
| Item | 0 | 1 | 2 | 3 |
| Est Cost | $ - | $ 75,000 | $ 100,000 | $ 50,000 |
| Billing Amount | $ - | $ 100,000 | $ 133,000 | $ 66,500 |
| Cumulative Construction Cost | $ - | $ 75,000 | $ 175,000 | $ 225,000 |
| Expected Income from Progress Payments | $ - | $ (A) | $ 90,000 | $ 119,700 |
| Cumulative Income | $ - | $ - | $ 90,000 | $ (B) |
- A. $209,700
- B. $90,000
- C. $225,000
- D. $0
3) The quick ratio of a construction firm is 1.6. The company's current liabilities indicated on the balance sheet totals $6,562,500. Cash shown is $5,250,000. Given this information, what is the total amount of accounts receivable that is indicated on the balance sheet?
- A. $5,250,000
- B. $8,550,000
- C. $5,400,000
- D. $9,650,000
4) Consider the following billing cycle for a given project. Assuming retention as stated in the contract is 10%, please solve for Box A.
| Month | ||||
| Item | 0 | 1 | 2 | 3 |
| Est Cost | $ - | $ 75,000 | $ 100,000 | $ 50,000 |
| Billing Amount | $ - | $ 100,000 | $ 133,000 | $ 66,500 |
| Cumulative Construction Cost | $ - | $ 75,000 | $ 175,000 | $ 225,000 |
| Expected Income from Progress Payments | $ - | $ (A) | $ 90,000 | $ 119,700 |
| Cumulative Income | $ - | $ - | $ 90,000 | $ (B) |
- A. $75,000
- B. $100,000
- C. $0
- D. $90,000
5) AEcom Construction Company was awarded a contract for $1,200,000 to construct a small retail development. Redbird Co. estimates its total cost on the job to be $1,000,000. During the first month of the project, the following transactions occur:
• Cash of $20,000 is paid for permits, fees, and other startup costs
• An invoice is received from the excavation contractor for $15,000
• The first progress invoice is prepared for $110,000
Determine the profit that should be recognized to date under an accrual based accounting system.
- A. $110,000
- B. $75,000
- C. $7,000
- D. $12,000
Expert Answer:
Financial Accounting
ISBN: 978-0078025556
8th edition
Authors: Robert Libby, Patricia Libby, Daniel Short
