Question:
Refer to the situation described in BE 5–7. During the first year the company billed its customer $7
million, of which $5 million was collected before year-end. What would appear in the year-end balance
sheet related to this contract?
Answer:
Assets:
Accounts receivable ($7 million – 5 million) $2,000,000
Cost plus profit ($6 million + 2 million*)
in excess of billings ($7 million) 1,000,000
* Total estimated gross profit ($20 million – 15 million) = $5,000,000
multiplied by the % of completion 40%
Gross profit recognized in the first year $2,000,000
Refer to the situation described in BE 5–7. During the first year the company billed its customer $7
million, of which $5 million was collected before year-end. What would appear in the year-end balance
sheet related to this contract?
Answer:
Assets:
Accounts receivable ($7 million – 5 million) $2,000,000
Cost plus profit ($6 million + 2 million*)
in excess of billings ($7 million) 1,000,000
* Total estimated gross profit ($20 million – 15 million) = $5,000,000
multiplied by the % of completion 40%
Gross profit recognized in the first year $2,000,000
