Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,100,000. In the first year of the contract Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete the project are $5,000,000. Tullis billed $5,000,000 in year 1 and collected $3,500,000 by the end of the year. How much should Tullis report as Accounts Receivable at the end of year 1 on the balance sheet assuming the use of the completed-contract method?
A) $0
B) $1,500,000
C) $5,000,000
D) $8,500,000

Question

Quizplus · Accepted Answer

Under the completed-contract method, revenue is recognized only when the contract is completed. Therefore, the amount billed but not yet collected ($5,000,000 billed - $3,500,000 collected) is reported as Accounts Receivable, which is $1,500,000.

Tullis Construction Enters into a Long-Term Fixed Price Contract to Build