Noah Construction Company Is Building a Large Complex for a Contract

question 117

Multiple Choice

Noah Construction Company is building a large complex for a contract price of $5,000,000. This is a three-year project estimated to cost $4,000,000 and the following information is available:
$\begin{array}{llll}(\$ \text { in thousands) } & \text { Year 1 } & \text { Year 2 } & \text { Year 3 }\\\text { Costs incurred } & \$ 1,000 & \$ 1,500 & \$ 1,250 \\\text { Estimated completion costs } & \$ 3,000 & \$ 1,500 & \$ 10 \\\text { Billings } & \$ 750 & \$ 1,750 & \$ 2,500 \\\text { Cash collected } & \$ 500 & \$ 1,500 & \$ 3,000\end{array}$
-Which one of the following entries would be made in Year 1 to record the costs incurred using the percentage-of-completion method of revenue recognition?

• A) DR Inventory: Construction in progress \(\quad\)\(\quad\)\(1,000,000\)
• CR Accounts payable, cash, etc.\(\quad\)\(\quad\)\(1,000,000\)
• B) DR Inventory: Construction in progress \(\quad 1,000,000\)
• CR Income on long-term construction contract\(\quad 1,000,000\)
• C) DR Inventory: Construction in progress \(\quad 1,000,000\)
• CR Billings on construction in progress\(\quad 1,000,000\)
• D) DR Income on long-term construction contract \( \quad 1,000,000 \)
• CR Accounts payable, cash, etc. \( \quad 1,000,000 \)

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Definitions:

Treasury Stock

Shares of a company's own stock that it has reacquired but has not retired, which can be resold or used for other corporate purposes.

Paid-in Capital

The amount of money that shareholders have invested in the company through the purchase of its stock, over and above the par value of the shares.

Par Value

The face value of a bond or stock as stated in the corporate charter, which is the minimum amount the security can be sold for upon its initial offering.

Treasury Stock

Stocks that the company originally issued and then bought back, decreasing the total number of shares available for trading on the public market.