Magnum Construction Contracted to Construct a Factory Building for $545,000

question 91

Essay

Magnum Construction contracted to construct a factory building for $545,000.The company started during 2012 and was completed in 2013.Information relating to the contract is as follows:
$$\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 2 } & \mathbf { 2 0 1 3 } \\\hline \text { Costs incurred during the year } & \mathbf { 1 3 1 0 , 0 0 0 } & \mathbf { 1 1 7 0 , 0 0 0 } \\\hline \text { Estimated additional cost to complete } & 165,000 & \ldots \\\hline \text { Billings during the year } & 280,000 & 285,000 \\\hline \text { Cash collections thring the year } & 260,000 & 305,000 \\\hline\end{array}$$
Required:
Record the preceding transactions in Magnum's books under completed-contract and the percentage of completion methods.Determine amounts that will be reported on the balance sheet at the end of 2012.

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Definitions:

Safety Inventory

The reserve stock maintained to prevent stockouts, ensuring smooth operations despite demand and supply fluctuations.

Pipeline Inventory

Goods in transit or in the process of distribution, considered as a part of a company's inventory.

Product Substitution

The practice of replacing one product with another, often due to stockouts, customer preferences, or cost considerations, to maintain service levels and customer satisfaction.

Different Product

A good or service that is distinct from others in its category, often possessing unique characteristics or features.