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

Which one of the following entries would be made in Year 1 to record the income recognized using the percentage-of-completion method of revenue recognition?

Multiple Choice

DR Inventory: Construction in progress $250,000 DR Construction expense $1,000,000

CR Construction revenue $1,250,000 DR Income on long-term construction contract $3,125,000

CR Accounts payable, cash, etc. $3,125,000 DR Inventory: Construction in progress $375,000

CR Billings on construction in progress $375,000 DR Inventory: Construction in progress $675,000 CR Billings on construction in progress $675,000