GEB 4522: ACG4101 Chapter 6B
Homework Questions and Answers.
Summary data for Benedict Construction Company's (BCC) Job 1227, which was completed in
2024, are presented below:
Bid price $ 610,000
Contract cost:
2023 (244,000)
2024 (275,000)
Gross profit: 91,000
Estimated cost to complete:
12/31/2023 $216,000
12/31/2024 $0
Assuming BCC recognizes revenue upon project completion, what would gross profit have been
in 2023 and 2024 (rounded to the nearest thousand)?
a. $42,782 | $48,218
b. $36,400 | $54,600
c. $74,277 | $16,723
d. $0 | $91,000 - Answer d. $0 | $91,000
No revenue is recognized until completion of project in 2024.
Blue Co. had the following first-year amounts related to its $12,000,000 construction contract:
Actual costs incurred and paid $3,000,000
Estimated remaining costs to complete $6,000,000
Progress billings $3,500,000
Cash collected $3,100,000
Assuming the contract qualifies for revenue recognition over time, what total amount (excluding
cash) should Blue Co. recognize as current assets at year end?
a. $0
b. $1,000,000
c. $900,000
, d. $3,000,000 - Answer c. $900,000
When a long-term construction contract qualifies for revenue recognition over time, the entity
measures the progress toward completion by comparing total costs incurred to date,
$3,000,000, to total estimated costs, which consist of costs to date of $3,000,000 and estimated
remaining costs to complete of $6,000,000 for a total of $9,000,000. As a result, progress to
date is $3,000,000/$9,000,000 and the project is 1/3 complete.
With a contract price of $12,000,000 and an estimated cost of $9,000,000, estimated profit is
$3,000,000 and profit recognized to date will be 1/3 or $1,000,000. This is added to
construction in progress, resulting in an ending balance of $4,000,000. The entity will then
compare the balance in construction in progress to billings of $3,500,000, with the excess
reported as either a current asset or current liabilities. Since construction in progress of
$4,000,000 exceeds progress billings of $3,500,000 by $500,000, this amount will be reported as
a current asset, entitled something like Costs and profits in excess of billings.
In addition, the $3,500,000 billing created a current receivable, which was reduced by the
collections of $3,100,000 resulting in a receivable balance of $400,000. The total related current
assets are $500,000 + $400,000 or $900,000.
Sandlewood Construction Incorporated recognizes revenue over time according to percentage
of completion for its long-term construction contracts. In 2024, Sandlewood began work on a
$10,000,000 construction contract, which was completed in 2025. The accounting records
disclosed the following data at the end of 2024:
Costs incurred $5,400,000
Estimated cost to complete $3,600,000
Progress billings $4,100,000
Cash collections $3,200,000
How much gross profit should Sandlewood have recognized in 2024?
a. $0
b. $700,000
c. $1,000,000
d. $600,000 - Answer d. $600,000
As of year-end 2024, revenue recognized to date is ($5,400,000 ÷ ($5,400,000 + 3,600,000)) ×
$10,000,000 = $6,000,000, and cost of construction recognized to date is $5,400,000, so gross
profit recognized to date is $600,000.
Homework Questions and Answers.
Summary data for Benedict Construction Company's (BCC) Job 1227, which was completed in
2024, are presented below:
Bid price $ 610,000
Contract cost:
2023 (244,000)
2024 (275,000)
Gross profit: 91,000
Estimated cost to complete:
12/31/2023 $216,000
12/31/2024 $0
Assuming BCC recognizes revenue upon project completion, what would gross profit have been
in 2023 and 2024 (rounded to the nearest thousand)?
a. $42,782 | $48,218
b. $36,400 | $54,600
c. $74,277 | $16,723
d. $0 | $91,000 - Answer d. $0 | $91,000
No revenue is recognized until completion of project in 2024.
Blue Co. had the following first-year amounts related to its $12,000,000 construction contract:
Actual costs incurred and paid $3,000,000
Estimated remaining costs to complete $6,000,000
Progress billings $3,500,000
Cash collected $3,100,000
Assuming the contract qualifies for revenue recognition over time, what total amount (excluding
cash) should Blue Co. recognize as current assets at year end?
a. $0
b. $1,000,000
c. $900,000
, d. $3,000,000 - Answer c. $900,000
When a long-term construction contract qualifies for revenue recognition over time, the entity
measures the progress toward completion by comparing total costs incurred to date,
$3,000,000, to total estimated costs, which consist of costs to date of $3,000,000 and estimated
remaining costs to complete of $6,000,000 for a total of $9,000,000. As a result, progress to
date is $3,000,000/$9,000,000 and the project is 1/3 complete.
With a contract price of $12,000,000 and an estimated cost of $9,000,000, estimated profit is
$3,000,000 and profit recognized to date will be 1/3 or $1,000,000. This is added to
construction in progress, resulting in an ending balance of $4,000,000. The entity will then
compare the balance in construction in progress to billings of $3,500,000, with the excess
reported as either a current asset or current liabilities. Since construction in progress of
$4,000,000 exceeds progress billings of $3,500,000 by $500,000, this amount will be reported as
a current asset, entitled something like Costs and profits in excess of billings.
In addition, the $3,500,000 billing created a current receivable, which was reduced by the
collections of $3,100,000 resulting in a receivable balance of $400,000. The total related current
assets are $500,000 + $400,000 or $900,000.
Sandlewood Construction Incorporated recognizes revenue over time according to percentage
of completion for its long-term construction contracts. In 2024, Sandlewood began work on a
$10,000,000 construction contract, which was completed in 2025. The accounting records
disclosed the following data at the end of 2024:
Costs incurred $5,400,000
Estimated cost to complete $3,600,000
Progress billings $4,100,000
Cash collections $3,200,000
How much gross profit should Sandlewood have recognized in 2024?
a. $0
b. $700,000
c. $1,000,000
d. $600,000 - Answer d. $600,000
As of year-end 2024, revenue recognized to date is ($5,400,000 ÷ ($5,400,000 + 3,600,000)) ×
$10,000,000 = $6,000,000, and cost of construction recognized to date is $5,400,000, so gross
profit recognized to date is $600,000.
