How Should the Balances of Progress Billings and Construction in Process

question 139

Multiple Choice

How should the balances of progress billings and construction in process be shown at reporting dates prior to the completion of a long-term contract?

• A) Progress billings as deferred income, construction in progress as a deferred expense.
• B) Progress billings as income, construction in process as inventory.
• C) Net balance, as a current asset if debit balance, and current liability if credit balance.
• D) Net balance, as income from construction if credit balance, and loss from construction if debit balance.

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Definitions:

Machine-Hours

A measure of the amount of time machines are running in the production process, used to allocate manufacturing overhead costs.

Predetermined Overhead Rate

The rate used to allocate manufacturing overhead to individual units of production, based on estimated costs and activity levels.

Machine-Hours

A measure used in accounting to allocate manufacturing overhead costs to products based on the number of hours machines are used in the production process.

Markup

The amount added to the cost price of goods to cover overhead and profit, determining the selling price.