Noah Construction Company Is Building a Large Complex for a Contract

question 86

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 2 to record the customer billing using the percentage-of-completion method of revenue recognition?

• A) DR Accounts receivable\(\quad\)\(1,500,000\)
• CR Cash\(\quad\)\(\quad\)\(1,500,000\)
• B) DR Accounts receivable\(\quad\)\(\quad\)\(1,500,000\)
• CR Billings on construction in progress\(\quad\)\(\quad\)\(1,500,000\)
• C) DR Accounts receivable\(\quad\)\(\quad\)\(1,750,000\)
• CR Income on long-term construction contract\(\quad\)\(\quad\)\(1,750,000\)
• D) DR Accounts receivable\(\quad\)\(1,750,000\)
• CR Billings on construction in progress\(\quad\)\(1,750,000\)

---

Definitions:

Units Started

The number of items that have begun the manufacturing process but may not yet be completed.

Accountable Care Organization

A group of healthcare providers who come together to give coordinated high-quality care to Medicare patients, aiming at reducing costs.

Health Care Reform

Efforts and policies aimed at improving and expanding access to health care services, reducing costs, and improving the quality of care.

Heart Failure

A chronic condition in which the heart is unable to pump efficiently, leading to insufficient blood flow to meet the body's needs.