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

question 99

Multiple Choice

Tullis Construction enters into a long-term fixed price contract to build an office tower for $14,000,000. In the first year of the contract, Tullis incurs $5,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $6,000,000 in year 1 and collected $3,700,000 by the end of the end of the year. Refer to Tullis Construction. What would be the journal entry in Year 1 to record revenue assuming the use of the percentage-of-completion method? (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.)

• A) \(\begin{array}{lrr}
• \text { Accounts Receivable } &3,700,000\\
• \text {Revenue for Long-Term Contracts } &&3,700,000\\
• \end{array}\)
• B) \[\begin{array} { l c c }
• \text { Cost of Construction } & 5,000,000 \\
• \text { Construction in Progress } & 2,000,000 & \\
• \quad \text { Revenue for Long-Term Contracts } & & 7,000,000
• \end{array}\]
• C) \[\begin{array} { l l l }
• \text { Cost of Construction } & 2,000,000 \\
• \text { Construction in Progress } & 5,000,000 & \\
• \quad \text { Revenue for Long-Term Contracts } & & 7,000,000
• \end{array}\]
• D) \[\begin{array} { l l l }
• \text { Accounts Receivable } & 3,700,000 \\
• \text { Billings in Excess of Costs } & 2,300,000 & \\
• \quad \text { Revenue for Long-Term Contracts } & & 6,000,000
• \end{array}\]

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Definitions:

Direct Write-off Method

Accounting practice where uncollected receivables are directly written off against income when deemed uncollectible, without using an allowance account.

Bad Debt Expense

A financial accounting concept representing the amount of uncollectible accounts receivable that a company expects to write off as a loss.

Allowance for Doubtful Accounts

A contra-asset account used to estimate the portion of accounts receivable that may not be collectible, reflecting potential losses.

Allowance for Doubtful Accounts

A contra asset account used to estimate the portion of accounts receivable that is expected to be uncollectible.