Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,700,000. 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 $4,000,000 in year 1 and collected $3,500,000 by the end of the end of the year. How should Tullis report Construction in Progress and Billings on Construction in Progress at the end of year 1 on the balance sheet assuming the use of the completed-contract method?
A) liability of $1,000,000
B) asset of $1,000,000
C) asset of $500,000
D) liability of $500,000

Question

Quizplus · Accepted Answer

Under the completed-contract method, revenue and expenses are recognized only when the contract is completed. At the end of year 1, Tullis has billed $4,000,000 but incurred costs of $3,000,000, resulting in a liability of $1,000,000 (Billings in excess of costs).

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